CEO Guide to Controlling CFOs, Controllers and other Accounting Department Misfits

Typical Accounting Department Accountants can’t help it – it’s genetic Accountants can’t help it – it’s genetic Track it – from the beginning of the world Track it – from the beginning of the world Measure it – to 2 decimal places Measure it – to 2 decimal places Graph it – color, animated and 3-D Graph it – color, animated and 3-D Trend it with 172 different assumptions Trend it with 172 different assumptions More reports are better More reports are better Rear view mirror magicians Rear view mirror magicians Accountants’ reporting goals – accurate, timely and useless! Accountants’ reporting goals – accurate, timely and useless!

Not Just Useless - Dangerous Too many reports Too many reports Too much information Too much information The danger The danger Unimportant hides the critical Unimportant hides the critical Report production becomes goal Report production becomes goal Management efforts focus on the wrong things Management efforts focus on the wrong things No effective decision making tools No effective decision making tools

CEO’s Role Explain the vision 1, 5 and 10 years Explain the vision 1, 5 and 10 years Develop the strategic plan Develop the strategic plan Determine the key performance indicators Determine the key performance indicators No more than 5-6 No more than 5-6 Key items to measure – key to your success Key items to measure – key to your success Determines ability to execute the plan and realize the vision Determines ability to execute the plan and realize the vision Sets the foundation for management’s focus Sets the foundation for management’s focus

A Look at Some Examples KPIs vary greatly business to business KPIs vary greatly business to business KPIs similar to incentive pay plan KPIs similar to incentive pay plan Simplicity is a virtue Simplicity is a virtue The CEO knows them intuitively The CEO knows them intuitively The accountant wouldn’t think of them in 100 years! The accountant wouldn’t think of them in 100 years!

Real World – HVAC Service Revenue per employee > 100,000 Revenue per employee > 100,000 Field personnel / inside personnel > 2:1 Field personnel / inside personnel > 2:1 Service agreements > 500 per million in revenue Service agreements > 500 per million in revenue Selling, general and admin. costs < 27% Selling, general and admin. costs < 27% Equipment costs < 25% of replacement sales Equipment costs < 25% of replacement sales

Real World – Electrical Contracting Backlog > six months trailing revenue Backlog > six months trailing revenue Backlog gross profit > 19% Backlog gross profit > 19% Selling, general and admin expense < 10% Selling, general and admin expense < 10% Receivable DSOs < 52 days Receivable DSOs < 52 days Accident and injury costs < 4 cents per hour Accident and injury costs < 4 cents per hour

Real World – Prisoner Transport Prisoner trips per week Prisoner trips per week Trip revenue miles / actual route miles >2:1 Trip revenue miles / actual route miles >2:1 Trip revenue $ per actual route mile > $1.75 Trip revenue $ per actual route mile > $1.75 Housing nights / prisoners on board < 10% Housing nights / prisoners on board < 10%

Accounting Department Essentials CEOs must lead CEOs must lead Spend the time to determine the info you need Spend the time to determine the info you need Set the Key Performance Indicators Set the Key Performance Indicators Set the target values Set the target values Demand the info you need Demand the info you need Avoid “extra” reports – you can’t afford them Avoid “extra” reports – you can’t afford them What gets measured is indeed what gets done What gets measured is indeed what gets done … So Measure the Right Things!