Habits of Successful Accountants #5 – Upgrading

Personal professional development is very important for accountants, but have you noticed how often the accounting system languishes, still at the version that was installed years ago?  As an implementation consultant, I would talk to clients about features they were missing because they were on an old version of the software.  The answer was often that they didn’t have the budget for an upgrade.

Budgeting For Success

Finding the money to invest in your system can be problematic, particularly in these days of economic uncertainty.  At the same time, it is often an excuse.  There’s no money in the budget for system upgrades because nobody budgeted for a system upgrade.  It can turn into a vicious circle!

Yes, a complete system upgrade can be expensive, but who says you have to take on everything at once?

Making a List

Remember back to when you installed your current accounting system.  What features made you decide on the one you chose?  What cool stuff were you looking forward to?  Chances are, the cool stuff never got fully implemented.  Why?  Because of the time and expense involved in just getting the basic system going.  Accounting systems are complex and the process of converting the data from an old system to a new one often takes a lot longer than expected.  As the deadline to go live approaches, optional features are deferred so that the team can focus on the basics.  And the cool stuff is often optional.  The sad thing is that the deferred features are often never implemented.

So, make yourself a little list of what you want in your system.  It doesn’t have to be all accounting software.  If your accounting department is like many of the ones I see, it can get pretty cramped.  Imagine how spacious it would be if half of the filing cabinets were removed and the paper scanned instead of filed.

New Year’s Resolution

What about adding this to your new year’s resolutions?  “I will improve my system every year.”  Accounting software packages tend to have at least one major upgrade per year, and they encourage their customers to stay on the current version.  What we used to advise clients was to upgrade every other year, unless there was a feature in the new version that they particularly liked.  This kept them reasonably up to date at a reasonable cost.  What I would add to that advice is to do the next item on your list in the years that you don’t do a software upgrade.  That way, you are always getting better!

Reprinted with the kind permission of Idatix Inc:  http://www.idatix.com/insider-perspective-habits-of-very-successful-accountants-upgrading-annually/

Budgeting Blues

The Division Manager looked at me.  “Don’t ask me why we didn’t meet budget.  Those budget numbers aren’t mine.  They’re way too high.  I never agreed to that.”  If you are a financial analyst, that quote might be very familiar to you.  It should be so simple, right?  The division budgeted $X million in sales.  The year is half over, so they should have reached 50% of $X million, but they’re actually less than that.  All you want is a reasonable explanation.  Instead, you get an argument about the budget.

Sometimes, it’s a stalling tactic, but sometimes the person really doesn’t remember or doesn’t know where the budget numbers came from.  Budgeting is more of an art than a science.  In theory it’s easy.  Every division does some crystal ball gazing and submits their best forecast for the coming year.  The numbers are assembled for the whole company and after a negotiation about who gets what share of the available resources, the budget is set.

In reality, it can get a lot more complicated.  The negotiations can go back and forth.  Numbers get adjusted.  To understand the final number, you have to understand the history.  The problem with spreadsheets is that when you change a cell, whatever was there before is lost.  So there may be nothing to tell you that the final sales number was increased due to a sales promotion that actually never happened.

Some budgeting systems solve this by allowing you to enter a series of budget adjustments instead of changing the cells directly, but if you’re like most of us, still using spreadsheets, having a system that locks in previous versions of a spreadsheet can save you a lot of hassle later on.  If you have locked in versions of the budget, not only will you understand what’s in the numbers, you’ll be able to prove it.

Sound, Practical Financial Advice From a Bank??

A round of applause to the bank president who wants the Federal Government to reduce the maximum mortgage limit from 30 years back to 25. (I guess he doesn't realize that he could order his own people to do just that.)

Without getting into a bunch of financial mumbo jumbo, I look at it this way: you get the big mortgage when you need the space for a growing family. With the cost of university education being as high as it is, you need the mortgage paid off by the time the kids go there. A 30 year mortgage leaves you caught in a financial squeeze.

Unfortunately, bank employees don't talk in those terms when you sit down to negotiate your finances. They tell you that you can afford a bigger house with a 30 year mortgage. While not technically a lie, it is hardly a responsible practice either.

So, Mr. Clark, put your bank where your mouth is and give your young customers solid, practical financial advice. You don't need Federal Government approval for that.

http://www.theglobeandmail.com/globe-investor/mortgage-rules-should-be-stricter-td-chief-says/article2271588/

Accounting Crisis Response

Major David Ebel, of the Escondido Salvation Army, is one of the moderators of the Emergency and Disaster Responders Support web site.  I spoke to him about training as a volunteer to help people in crisis.

"You may think of fires and earthquakes when you talk about disaster relief, but if you were in Escondido, I could use your accounting skills right now," he said.  Ebel went on to describe the financial challenges some of the people he serves face.  "If you could help people figure out how to live on $22,000 per year, you would be making a big contribution to their quality of life."

Ebel continued, "Some of the people I work with have never seen a raw potato.  They don't realize that they can buy five pounds of potatoes for the cost of two boxes of processed potato flakes.  They have never made mashed potatoes from scratch in their life."

In the financial area, I see a similar lack of exposure to the basics.  In my grandfather's day, if a young couple came to the bank for a mortgage they couldn't afford, the loan officer would quietly explain the situation to them and refuse to advance the money.  Fast forward to today, where the bank employee will help you minimize your payment by reducing the down payment and extending the amortization period from 20 years to 35 years.  The problem is, they don't tell you the consequences of those decisions.

Let's say you have a $100,000 20 year mortgage at 5%.  Over the course of the mortgage, you will pay $57,710 in interest, at $657 per month.  If you extend that mortgage to 35 years, then you will pay $110,600 in interest (more than the original mortgage!), at $501 per month.  That extra $150 per month makes a huge difference spread over 20 years.  Here's the part they don't tell you:  if you get the 20 year mortgage when you're 20, then it's almost paid off at the time when your children may need college tuition or are considering getting married, etc.  If you go for the 35 year option, then you haven't paid off the house until you're 55 years old!  Who needs that kind of stone around their neck?!

The point of all this is simply that when budgeting for mortgage payments, the right question to ask is "What's the MAXIMUM I can pay?"  As odd as it sounds, reducing mortgage payments makes mortgages LESS affordable, not more.

The sub-prime mess is still with us.  People have been badly wounded and those wounds are no less real for being financial.  Grab your spreadsheets and get out there!  If anyone reading this blog knows of ways to help counsel people or places to volunteer, please note them in the comments.