Good morning!

The fourth quarter of the year inevitably produces thoughts about "finishing strong" or, as next year's budget process develops, "starting fresh." But with any organization that's been around for more than a year, there's a context: what happened last year? …and the year before? …and the year before that?

A good budgeting process means taking the time to assess results over time, being mindful that it's hard to spot trends in a single data point.

In very similar fashion, my client Helen Venero, President of VTI Corporation in Hialeah, FL, noted during my visit there last week that even though 2007 revenues were ahead of 2006 for the first nine months, a big push will be required in the fourth quarter in order to finish ahead for the year. Last year's final three months were the best ever as the Company accelerated production to clear its order backlog by New Year's. She noted that there's a healthy seasonal backlog again and that the staffing is in place to ship it all this year without repeating last year's overtime push.

For his part, Dan Deneault, President of Purity Services, a long-time client in New Bedford, MA, maintains his bar charts on Excel these days. But the basic data entries of throughput per production hour are annotated each week with his brief comments about factors impacting production — new equipment brought on-line, weather delays, management initiatives, vendor supply issues, machinery down-time, etc. Thus, as his productivity has steadily increased during the past several years, he can readily spot and account for the anomalies and the transition points.

Mary Weiser, the long-time Controller of Vanguard Sailboat Company in Portsmouth, RI, excels in assessing historical trends in both revenues and expenses. As part of the management team's monthly operational review, Mary and her staff compare the expense in each line item with that of prior year (and the budget) for both the month and year-to-date, and they account for the major differences. By maintaining a file of her notes for each meeting, Mary can readily access what happened a year (or two, or three) ago to identify trends leading to the results for the current month.

All of this seems like simple stuff, and it is. What's amazing is how few smaller companies make the commitment to maintain and use historical records to provide perspective on current operations. In part this is due to high management turnover: often the owner/president is the only member of the management team with much institutional memory. But in large part it results from a failure to document what has happened — an issue which applies to everything from office procedures and software code-writing to customer relations and employee performance reviews.

Six quick-and-easy procedures can ensure that you have the financial information you need to provide a context for decision-making:

1. Report your financial results in a consistent format. Avoid making frequent, minor changes to the chart of accounts.
2. Make major account formatting changes at year-end, and then recast the previous year in the new format to provide a detailed basis for comparison going forward.
3. Array your annual results side-by-side — income statement, balance sheet, and cash flow statement. Using an Excel sheet and your year-end tax return or accounting review, it's a simple data-entry exercise. Do you see trends that you weren't aware of? Can you account for year-to-year anomalies?
4. Make sure that your accounting staff is maintaining the monthly results on a spreadsheet. Ask them to insert cellular comments for each line item that is inconsistent with recent months, or the prior year, or the budget.
5. Review this spreadsheet, line by line and comment by comment, in the process of putting together your budget for 2008, and…
6. Resolve to hold your people accountable for the differences.

Once I started charting the financial results of my paper route business, the handwriting was definitely on the wall — peddling the Globe, Herald, Post, and Record was not alone going to pay my way through college. Consequently, the Brad Howe Enterprises chart of accounts included more revenue categories through high school, but that graph on the bedroom wall always pointed toward the goal. The alarm clock may have woken me up at 5:30 a.m., but those trend lines are what got me out of bed each morning.

"In most organizations, control is exercised via standard operating procedures, tight supervision, detailed role definitions, a minimum of self-directed time, and frequent reviews by higher-ups. These mechanisms certainly bring people to heel, but they also put a short leash on initiative, creativity, and passion. Luckily there are other ways of keeping things in check — other hows, if you will.