Category: Business

CNN Breaking News: President Obama Is Elevating SBA to a Cabinet-Level Agency


Get-attachmentIn my book "CFO Techniques" I praised the U.S. Small Business Administration agency (SBA) for its role in supporting small businesses, particularly with their loan-backing program, and the amazing informational gold mine that is SBA.gov site – literally, the best resource out there. It's no surprise that when CNN's news flash quoted in the title of this post has arrived into my mailbox last week, it immediately caught my eye.

You've got to admire the skills of the public relation specialists in Washington (I wish my publisher's PR department was as masterful, or at least as industrious)! Look at the words selection: "elevate to a cabinet-level." Wow! Sounds like the president is going to take the "lowly peasant" (never mind facilitation of over $30 billion in loans per year and $570-million budget) and magically transport it to Mount Olympus to reside there with gods. And how democratic! The whole agency is being "elevated," as if all of its 2000 employees can be members of the cabinet. Some people may even think that this will empower the small businesses and their interests will become "special" – just like the ones of pharmaceutical giants, auto manufacturers, big oil, and mining conglomerates.

In reality, the only person who immediately benefits from this move is the SBA's Administrator, Karen Mills. She has become a member (already listed on www.whitehouse.gov/administration/) of Obama's cabinet and now will rub shoulders with the likes of Hillary Clinton and Janet Napolitano.

Whether Ms. Mills' accomplishments at SBA (or credits she takes for her subordinates' accomplishments) justify her new status could be a subject of an investigative journalism exercise. If it's White House's conclusion that she is the best candidate for providing the President with the advice on the only opportunity to save this country's economy, i.e. cultivation and support of the small-business environment, then be it.

I am more interested in the actions that will follow this first step in what being hailed as a program for raising "international competitiveness of American companies." You see, SBA is not meant to remain a cabinet-level agency for too long. In fact, it's not meant to stay a government agency at all. The intention is to "merge" SBA, along with the Export-Import Bank (ExIm), the Overseas Private Investment Corporation, the Trade and Development Agency, the Office of the Trade Representative, into the Department of Commerce (already a member of the Cabinet).

Whether they will continue calling this newly formed government Chimera the Department of Commerce or find it a new name (the way it happened with the Homeland Security), it is obvious that the already existing ministry will absorb all those other entities and, as it always happens, with the loss of independence, their functionality will be stunted.

Look, what happened when HMOs started swallowing far more flexible smaller health insurance providers and formed such giants as Aetna, CIGNA, Health Net, and United Health? Did it make anything better for members? Of course not, we all know this: the premiums went up and the coverage got worse.

Do consumers and businesses benefit from the crazy wave of bank mergers we have experienced in the past 25 years? Again, no. The services get worse and the fees get higher (plus, the process contributes to unemployment).

Any type of consolidation cannot be considered an improvement. It's done for a show – to demonstrated that something cardinal is done. The results? Who cares?

In case of SBA, this is really a shame, because they have made already and could've continued making a significant positive impact on the struggling entrepreneurial business sector. Now, their good initiatives will be drowned in public policies, fiscal regulations, national directives, and all that other country-wide crap. Their micro-level approach will be gone forever.

I find it incredibly ironic that the entity dedicated to help small businesses will be remodeled as a part of a large-scale program.

Unimaginable Abyss of Accounting Ignorance


We constantly read and hear about American students' low level of academic performance. They rank 23rd out of 57 nations participating in international testing. Researchers and public-policy makers have been trying to figure out the reasons for this abysmal show of intellectual power. The "education system" is usually blamed: different teaching methodologies, testing devices, and so on, and so forth.

In my opinion the problem has nothing to do with educational technicalities. It's has to do with obvious gradual degeneration of general public's intellectual abilities (blame it on the mobile devices' radiation, if you have to). Whatever the reason, fact remains: high-schoolers are doing worse and worse in all subjects.

The common sense should lead a logical person to a conclusion that the declining academic achievements translate into a reduction in college enrollments. If one cannot keep up in a secondary school, how can that person attempt to receive a quality post-secondary education, right? Wrong! Between 1989 and 1999 college enrollments increased only by 9%, but in the 10 years after that – by 38% (!!!), from 14.8 million to 20.4 million.

And, of course, it's not easy to get into Ivy League schools, which accept 10-20% of the applicants (well, my readers know my opinion about the quality of education there). Yet, more than 80% of colleges in this country accept every other applicant, and there are some with 100% acceptance rate. I mean, the colleges want money and they will lower their requirements to whatever levels in order to fill the seats in the lecture halls.

So, every year millions of young people who were not succeeding at the high school level enter post-secondary education system. Why do they do that instead of trying to start their own businesses, attempt creative pursuits, or go into honorable and well-paid blue collar trades, I have no clue, but it is what it is.

Now, those kids who had comparatively better grades, some artistic inclinations, and/or expect to utilize their parents connections in the future take pre-med, pre-law, finance, marketing, various arts and designs . Those who don't think, or don't need to think, about their survival head for liberal arts. So, who ends up taking accounting majors? Everyone else as long as they can count without using their fingers.

But accounting and taxation are not easy. To fully understand it one should possess propensity for conceptual thinking, analytical mind, ability to absorb high volumes of regulations, standards, codes. And I am just talking about basics. 30-35 years ago up to 50% of freshmen who signed up for accounting courses would drop out before the first midterm. Nowadays, they somehow struggle through and graduate. The best of them are snatched by the Big 4, the next tier by other large CPA firms and big-time corporations.

The rest end up in the small and midsize businesses and accounting firms. It's my plight to deal with them, exposing myself on daily basis to the devastating result of this natural selection process. In every company I observe the same thing: so much is wrong! The books of different corporations are co-mingled, revenues and costs recognized incorrectly, inventory is not valued properly, etc., etc. It's difficult for an entrepreneurial company to survive in the first place; the accounting incompetence drags them down even further.

Books are kept intuitively, as if rules and standards did not exist. The most shocking thing is that auditors look at all that and accept it. The main concerns appear to be that the bank balances are reconciled to the statements and the control accounts match with supporting schedules. The PRINCIPAL CORRECTNESS is irrelevant.

I give them the benefit of the doubt and let them explain themselves.

Me: Why doesn't your inventory in storage match with the warehouse's records?

Them: Because they don't account for the three lots that already been loaded on the trucks.

Me: Neither should you. That's inventory in-transit, not in storage.

Them (in complete seriousness): Oh, that's what "in-transit" mean.

And I have sad conversations like that practically every day. Pity the well-versed professional!

My book "CFO Techniques" can help these people to improve. Too bad my publishers are not doing match to deliver it into the potential readers' hands.

Why Amy Jellicoe (Laura Dern) from “Enlightened” Drives Me Mad?


Enlightened10I like whatever Mike White (a friend of Jack Black) does. Ever since "Chuck & Buck," "Orange County," "The Good Girl," and "The School of Rock" I've been a fan of his writing, which is always quirky and amazingly original. And his new series on HBO "Enlightened" is fantastic: honest, insightful, filled with an incredible array of complex and realistically fucked-up characters. On a human level, it makes me laugh, cry, sigh in recognition, squirm from awkwardness, nod and shake my head – all within the same episode.

Yet, the economist in me cannot stop being constantly mad at the show's protagonist, Amy Jellicoe (played by always fabulous Laura Dern, who shares the show's executive-production credits with Mr. White). And it's not because I don't believe in the phony enlightenment through expensive retreats and self-help books. It seems that the creative team shares my opinion on this issue - the persistent cracking of the artificial facade exposes the impossibility of achieving peace in the realm of contemporary American existence, plagued by social and monetary fights for survival. What really makes this CFO frustrated is the fact that this woman DOESN'T PERFORM ANY WORK, BUT STILL GETS PAID.

There is nothing wrong with coming to realization that there are important things in your life beyond the job. Take if from me, most people work for a paycheck, not for self-realization, including those at the very top of the business hierarchy.   That's a sad truth about our lives. However, "WORK" is an operative word. Coming to the office whenever, occupying yourself with personal matters throughout the day, and then waltzing out smiling before anybody else, like Amy does - there is only one word to classify that kind of an attitude: STEALING.

If the job heavily bears on your psyche and you feel that you will not be able to tolerate the meaningless work for one extra second, leave and quit getting paid. That's the honest thing to do. And Amy does find a job, which agrees with her newly-acquired outwardly predisposition. Guess what? It pays only $25K a year and she "cannot survive on that!" If only she could continue getting the regular direct deposits from the bad-wolf corporation, while contributing her time at the shelter – that would be a blissful combination!

Amy seems like a person who wouldn't be toiling for eight hours in front of a computer screen even for the most noble purpose – it's just too much for an "enlightened" person. But she especially despises the fact that her department analyses the employees performance metrics. I am not going to judge here what the corporation does with the results – there is not enough information in the show to do so, only vague hints. Yet, I can definitely say that there is nothing wrong with productivity analysis per se. Companies of all shapes and sizes must to do that, if they want to survive and prosper.

Socialist countries provided most people with work (albeit at incredibly low salaries), regardless of their efforts. Many people there would come to places of employment without any impulse to attend to their jobs. Look what happened to those economies! It's people like Amy Jellicoe who end up at Zuccotti park hanging out and screaming about the disappearance of the middle class, while the real members of that class continue going to work, doing their jobs, helping their businesses to survive. Those, who don't want to work are the reason why the quality of products and services continuously goes down, why the economy deteriorates right in front of our eyes.


CFO Folklore: Audit Joke of the Month


Images-2It's time for CFOs to get in touch with their auditors and schedule preliminary work, field examinations, and so on and so forth.  Some diligently proactive CFOs send auditors estimates of their receivables, payables, and inventory balances even before the end of the year.

One such CFO receives a phone call from a middle-level auditor assigned by the CFO's primary contact John, the partner of the CPA firm, to do the preparatory legwork.

"Hi, my name is Luis, I work for John."

"Hi, Luis, nice to meet you over the phone."

"Based on your inventory levels John has decided that we must do a physical observation test at least at one location."

"That's fine.  Did you, guys, decide which one?"

"It's the one with the highest value of the stored product.  Hold on.  Let me see the name on your schedule…"

"Don't bother.  It's the Hudson Tank in Bayonne, New Jersey, near the port."

"That's right."

"Ok, I will make arrangements for the facility's management to escort you.  We have no activities scheduled for December 30th or 31st, so you can take the gauges' readings on the 30th as your year-end control."

"Well, will they be able to take the product out?"

CFO is silent for a few second, digesting the absurdity of the question and summoning her will power to prevent herself from laughing madly into the receiver.

"Luis, the product is a LIQUID chemical.  THAT'S WHY IT'S IN THE TANK.  The only way it can be taken out is if it's pumped out into another tank, or poured out onto the ground, or into the river, if you prefer that."

"So, I will not be able to actually see and count it?"

"Well, Luis, if you are really nice to the ladies who work there and bring them some Champagne for the New Year's celebration, they may let you climb onto the tank and dive in.  But I am warning you, Luis, it's over 40 feet tall.  Are you a good diver?"

 

A CFO’s Democratism Gets Tested


Worker Bee In most smaller companies, CFOs and controllers include general HR functions into their scopes of responsibilities – that's a given. The flat organizational structures, though, with their spatial and psychological proximity of top executives to the staff, play peculiar tricks on those in charge of the company's human relations.

Very frequently a CFO takes a role of a buffer between the owner/CEO and the rest of the company's employees. She feels obligated to soften the impact of the direct dealing with frequently harsh and hard attitudes of the boss.

I've said it before and I'll say it again: more frequently than not entrepreneurs don't have an experience of ever being in a position of an employee and, therefore, they have very little understanding of the staff's mentality. On the other hand, a CFO maybe a right-hand person now, but she is still just a salaried employee, most likely grown into her current status by climbing through the ranks. If she is a decent human with a conscience, she is sensitive to the needs of valuable employees and cares about their well-being (if they are useless, let someone else care about them).

It's likely that an excellent CFO would enjoy a comparatively preferential treatment by a CEO: more disciplinary leniency, nicer attitude, better perks, general amiability, etc. When it comes to other employees, their efforts and achievements may be remarkable, but they are not as evident to the boss, and that reduces their value in his eyes. I've had one CEO openly tell me that if I want a certain benefit (let's say flexible spending account) for myself, he would be fine with obtaining it, but he did not care about the rest of the "worker-bees."

So, the CFO takes it upon herself to protect other employees from undue tyranny and act as their speaker when it comes to betterment of the employment conditions, whatever they are: raises, bonuses, vacations, benefits, etc. Sort of like a representative of the XYZ Company's employees union. And when she discusses this situation with her friends and family, she expresses her disdain for the undemocratic ways of her boss, taking pride in her efforts to right the wrongs.

Now imagine such a CFO taking a position with a new company – small, young, still pretty much in development stage. The owners are very liberal and treat everyone like equals. Moreover, the CFO is the last person being hired. Those few other employees have been there from the start. Nobody needs protection. Furthermore, there is one person who has been there the longest, starting as a CEO's assistant. Not that she gets any special perks or something like that, but she definitely feels very secure.

This should make the democratic CFO very happy. After all, wasn't she fighting for equality of other employees all the time before? Yes, it's nice; wonderful, really; exactly what she hoped to find… Except that… Being "the chosen one" was kind of a guilty pleasure too, an enjoyable self-esteem booster. And the gratitude of others for all that blow-cushioning effort was very rewarding as well. As important as the democratic principles were to this CFO, the old tyranny is somewhat missed.

That's how we, humans, are. For various reasons and purposes, mostly subconsciously and without any malice, we create these little lies that alter our self-image and other people's perception of us in one way or another.

It reminds me of my UK friend of many years, Gerald Hamer's, revelation concerning his constant bitching and moaning about endless international traveling he had to endure throughout many years of his impressive career as financial broker and adviser. "In truth," he said, "deep inside I love the goddamn airports; the sub-par plane food; the inevitable delays; god-forsaken Yakutsk, the coldest city on Earth, with its diamond mines one week, and unbearable humidity of Bahrain another. I wouldn't want it any other way."

So, all you, democratic CFOs out there, work as hard as you can and fight for your employees' well-being with all you've got, but be honest with yourself: you enjoy being special, the Most Valuable Player in the field.