By Jessica Salerno-Shumaker, OSCPA senior content manager
Efficiency is valuable, but one expert warns businesses not to conflate efficiency with cash savings.
“The situation I run into with a lot of companies is they want to make improvements,” said Reginald Lee, co-founder of Business Dynamics & Research. “They’ll buy software and hire consultants. And the question is, when you do that to improve the organization, are you getting the cash returns that you look or expect to get?”
Lee spoke on ways to achieve maximum cash ROI on improvement projects during the State of Business podcast this week and will present a session on the same topic at the fall Accounting Shows.
Lee said many businesses and accountants have not considered challenging the typical approach used for calculating these improvements.
“When I worked in a big four environment, we used those techniques to justify all types of projects,” he said. “But I don't think anyone took a step back and said, ‘Well, is this the appropriate way to do it?’”
It’s crucial to understand the difference between cash and non-cash costs, he said. Many consultants promise “huge savings,” but that doesn’t necessarily equate to cash. Once businesses realize improvements don’t equal cash, they need to consider changing the business to get cash benefits and avoid putting the business in a cash-negative position.
Generally, Lee said when he discusses this topic with CPAs, they appreciate a different perspective, and that knowledge can open other opportunities for improvements in the business.
The biggest question he said he receives when presenting this is how to document the improvement. Lee said he uses a capacity map tool to graphically see the benefits from different scenarios and help make business decisions.
“If I'm working for firm, and I'm delivering value, I want to articulate the value proposition more effectively,” Lee said. “As a result of learning this information, a CPA can say how they can improve the organization and articulate value more effectively.”
And for additional learning on this topic, visit MyOSCPA.