This is the first of a series of notes I would like to write about issues facing the business world – through the lense of accounting.
There are some particular accounting specifics I’ll mention, but mainly these notes will cover ideas widely applicable to anyone in business.
Normalcy provides solid ground, a foundation for strategizing and taking action. For most of our careers, it was probably assumed to be present, like gravity. It permits shortcuts and abbreviations – both in writing and thinking.
These days though, as well all know, hardly anything is normal. There are obvious consequences of that which we all are aware of. They vary among us.
But I suggest it’s important to look beyond those immediate consequences, dig deeper, and uncover other ways in which your thoughts or practices are based on a situation – normalcy – which no longer exists.
We always limit our attention, according to what matters to us, what we want, what we don’t want. Those limits are based on prior experience and long-standing patterns. Now, all those past indications are much less relevant.
One big area is relationships – whether it’s co-worker’s, managers, customers, suppliers, competitors: in every case, taking anything for granted isn’t as valid. It needn’t take long, but checking in with the folks in the periphery of your day could inform you of situations you weren’t aware of. The highly-effective among us check in with a wide swath of people regularly all the time already, but many of us are normally more relaxed, and fall in to a rut. Time to reach beyond that are reconnect more widely.
It also is a good time to widen your circle of people as possible. Whatever important vendors you use – check out their competition. In case something changes with someone you rely on, you want to have beginnings of relationships already in place. Know who is the best among the rest of the folks. Know who would not be a good fit for you, no matter the circumstance.
If your business or organization has seasonal variations in your activities, and you normally prepare a certain way for that next season – try to check in more extensively and earlier before making those plans.
Your contingency planning – that one area that is already based on the absence of normal – even that can become outdated or lax. Review those assumptions. What if your alternate location itself was unavailable? Are the resources needed in that scenario readily available? Are your current staff and any important contractors all as familiar with your plans as they need to be?
Staff redundancy/cross training is always useful. In these days, even more important. The time-worn preference that employees have for making themselves invaluable to increase their power is really non-optimal for the company/organization. You want the ability to continue in any circumstance. You want all the necessary information from every employee/contractor necessary to have that ability.
In accounting land, I’ll just mention two areas of consideration very briefly. If you would like the longer version, please contact me.
In terms of accounting, there are relationships between the balance sheet and the income statement that are relatively stable. The balance sheet – a snapshot in time – contains the results of the income statement – which shows results of a period of time.
Balance sheet accounts – snapshot data – is supposed to be accurate at every interim point. Oftentimes the various accounts also vary in the extent to which that is true. Some accounts are really only accurate at year end, but the variations during the year are small enough that everyone is comfortable with that. Accrued vacation/pto payable and accrued salaries are two of those accounts.
If, however, your staff size and/or your programs/sales are changing, then you may want to reconsider.
Going about things the normal way when operations are shrinking can overstate your expenses during the year, and misstate the detail revenue/expense data to a degree that you might notice if you pay close attention to those things.
Accrued vacation – if you have a significant % of your staff leave, and they are taking PTO payouts, and they had a large amount of that pto already accrued at the beginning of the year – consider booking that payout to the liability account rather than the expense. That makes your expense this year smaller, and the balance sheet more accurate.
Accrued payroll is a more complicated consideration, for those of you with payroll period that don’t match the calendar months. It’s complicated because for you, accrued payroll – to be accurate – would be different every month, but nobody does that. Payroll is so important though that making any change from actual is a big deal. So again, please contact me if you’d like to know the rest of my spiel about that.
The accounting reality though – of the balance sheet / income statement relationship being complicated – is similar to many business realities.
It is similar to the ongoing differences we all have between how we want to be, and how we are. Our intentions and our actions. ‘Mind the Gap’.
During periods of rapid transition such as this one, that gap can change dimension and depth and have an impact on us unexpectedly. For that reason, it is useful to look more closely at these areas we normally ignore, to become aware of small shifts in time to respond effectively.
In this way there is more likelihood all of us coming through this transition period as optimally as possible.