Operational reviews save distressed companies and provide a roadmap for success

Are your competitors outsourcing to other countries in order to lower their labor costs, overhead and tax burdens? In the past decade, millions of jobs have been outsourced outside of the United States. What this means is that the future survival of U.S. companies depends upon our ability to compete in the global marketplace; therefore, the level of efficiency and productivity at which a company operates is of utmost importance. For these and many other reasons we will discuss in this article, many companies are turning to consultants to provide third-party, independent operational reviews of their organizations. Through these reviews, management gains the objective information and benchmark data necessary to obtain information and critical insights into the steps necessary for them to retain or regain their competitive edge. The operational review process forces management to take an objective look at all aspects of their businesses, and it provides a roadmap for future success. The review process typically identifies areas in need of development by comparing the reviewed company's operating approach to the best industry standards. The process involves examining critical areas such as performance, policies and procedures, internal controls, cash flow, and accounting. Key operational issues are identified and recommendations for improvements are made. The review process is forward thinking. It is less of a critical evaluation of what is being done or not done and more of an appraisal of what needs to be accomplished in order for the company to achieve its goals and to work at maximum efficiency. The most obvious benefit of the review is gaining control of economic loss. Countless stories grace the front pages of newspapers detailing the excessive number of dollars lost by companies due to employee embezzlement, lost opportunities, and/or excessive overhead. Often, management's inability to focus on the actual operation of a company causes these deficiencies. With the implementation of proper policies and procedures, the risk of lost dollars can be eliminated or dramatically reduced. It is important to note that policies and procedures are not "one size fits all." Each company is different; therefore, the policies and procedures must reflect the size, structure, and goals of that particular organization. For instance, in the case of designing financial internal controls that minimize misappropriation of assets, the policies of a larger company with multiple staff will differ greatly from those of smaller companies with fewer staff. In the case of a smaller company, more creativity is required to establish financial procedures that minimize risks. The overall goal of an operational review is to add to a company's bottom line; but there are many other subsequent benefits. Reducing fraud risks: * Establishing the proper procedures for supervision and reviews. * Identifying improper segregation of duties where an employee's responsibilities allow him/her to perpetrate or conceal a fraud. * Educating management teams about the ways fraud can be committed. * Alerting the staff that management is concerned about the risk of fraud. Employees will think twice if they know management will be reviewing their work and procedures. * Identifying areas where outside individuals have access to the corporation's assets. * Identifying the risk of financial statement fraud by top management. Creating efficiencies: * Identifying time-consuming procedures that have little or no benefit to the company. * Identifying unproductive or inefficient staff. * Implementing procedures that motivate staff and increase profits for the company. * Recruiting higher caliber staff, which results in lower staff turnover and higher performance rates. * Improving staff morale through investing in their development. * Improving performance through monitoring of individuals and teams. * Identifying or establishing organizational charts which ensure all employees are reporting to the correct individuals. Establishing, measuring and monitoring goals: * Establishing a strategic plan with measurable results and tangible goals. * Encouraging management to revisit and revise existing plans. Even though the company may have a current business plan, the daily activities of the company may not be in accord with these goals and objectives. An operational review can assist in identifying what is not working properly; or, whether the objectives of the business plan need to be modified. Increasing cash flow: * Determining the accuracy and timeliness of invoicing and billing. * Identifying the individuals within the company who should be responsible for tracking collections. Formulating a process for the individual to monitor and contact slow paying or problem customers. * Establishing customer credit policies and procedures. * Determining the proper procedures for recording and paying invoices. * Determining cash requirements on a daily, weekly and monthly basis. * Verifying the proper use and repayment of outside financing. Improving communications: * Identifying breakdowns in communication between management and staff, miscommunications between departments, problems with customer relations, and a variety of other issues of significant concern. * Improving the ways the company communicates with its staff, management, customers and vendors. Providing third-party assurance: * Assuring management, shareholders, and/or lenders that current activities or proposed activities will not expose the company to unwarranted risks. This becomes important during times of expansion, since what may be an insignificant problem at present could become a major problem after expansion takes place. Why it's important to use a third-party, independent external reviewer: 1. It is important to take an independent view of a company's operations rather than be restricted by habit and practice. With an objective review, the independent reviewer can easily remove the subjectivity that would otherwise be present in cases where management is reviewing his/her own practices and procedures. 2. There is a need to apply industry experience, as well as, general business principles. Your company benefits from the experience the independent reviewer has gained from other companies in the same industry. It is therefore important that you ensure that those performing the review have the practical experience, across all aspects of the industry, regarding management and performance. 3. An independent review allows management to focus their attention on the day-to-day operations of their company. It has been our experience that while companies may be very different in management style, culture and operational structure, they are all challenged with similar struggles. The fight to gain or maintain a competitive edge is an ongoing battle and the most successful companies are the ones who are open and receptive to change. The companies that take the time and effort to review how they do business, and why they do business in the manner they do, are the ones most likely to reach their goals. Stephen Mannhaupt, CPA is a partner at Grassi & Co., CPAs, Lake Success, N.Y.