Absentee Ownership Technique

Refocus and Prioritize

The author contends that almost every business owner or manager is an absentee owner or manager, regardless the amount of time they spend at their business.

The author contends that almost every business owner or manager is an absentee owner or manager, regardless the amount of time they spend at their business.

While many are ever present either physically or virtually—by phone, texts, and e-mails—they are not managing but rather working in their business on what needs to be done at that moment or that day.  They are responding to normal business routines, customer, supplier and personnel requests or problems; and myriad other situations that demand their time such as banking relationships, cash flow planning; HR issues including hiring, discharging, and compliance; interactions with outside professionals including their attorneys and accountants, and regulatory and occupancy issues.  Some have partner issues and if they are managing a not-for-profit organization, then board and possibly funding and development issues.  They are functioning as a necessary and essential employee and are not really running the business or organization—it is as if they were not there or were in another part of the country.

Given that this is so, or at least if you think my contention might be valid, there are many ways to handle this.  But first, there needs to be a recognition that what I am suggesting is the situation.  This requires a self-assessment of many things as follows:

• Is the owner/manager doing work that someone else could do?
• Does the owner/manager interject themselves into the most “important” situations where a decision is needed by them before others can move the project forward?
• Are conversations with partners or professionals consumed with operating issues rather than directed toward long range planning, direction, increasing the value of the business, and growth?
• Does the owner/manager feel that they could do more and/or are “stuck” in place?
• Are key personnel not empowered to make decisions (and therefore not “permitted” to make some errors)?

If any response to the above questions is a “yes,” then I believe some reassignment of the owner’s responsibilities needs to be made.  This listing is a small part of defining the absentee managers role, but the “yes” responses are strong indications they are not managing as well as they can.  Moving forward, irrespective of how poorly or greatly they manage, there are certain financial data they should get on a regular basis; and I contend it should be the same information an inactive or passive owner sitting half-way across the country should be getting.

Spending focused time of just two or three minutes a day, and a half hour once a month can provide the absentee (or present) manager with sufficient information that can have them gain better control over the business.  I have seen owners and managers that use this information with concentrated attention, for the short periods I suggest, start to change their role to a more valuable presence with this becoming a catalyst propelling bigger picture strategic thinking that moves the business to a new level.  Change needs to start, and this is a way to do it.

Here is a listing of reports and reasons.

Daily Reports (about three minutes)

• Daily cash report—this is a single sheet with the daily cash receipts, disbursements, and cash account balance; cash flow monitoring is paramount—one minute.
• Four or five key performance indicators—this is essential information about the business for the previous day.  Examples are daily sales and returns and credits, number of units produced and sold, total production hours, total hours worked or personnel head count, hotel rooms occupied and average room rate, pounds of steel received and shipped, patient visits and medical or dental procedures performed, restaurant covers, order backlog, chargeable hours, hospital bed count and average stay, new real estate listings and closings, orders received and shipped or hit ratios from websites—two minutes.

Weekly Reports (about two minutes)

• Summary of aged accounts receivable schedule compared to previous month and the beginning of the year amounts—one minute.
• Summary of aged accounts payable schedule compared to previous month and beginning of the year—one minute.

Monthly Reports (about a half hour)

• Profit and loss statement by each month for the current year, and compared to the year-end amount for the previous year—two minutes.
• If a product is sold, review monthly percentage of purchases to sales (this should be done when reviewing the profit and loss statement)—one minute.
• Look at percentage of all labor and benefits costs to sales; a separate schedule should be prepared for this—one minute.
• Balance sheet for current year with a column for each month and the previous year’s ending amounts—two minutes.
• Aged accounts receivable schedule—five minutes (with bookkeeper present or skype or on phone); without bookkeeper—10 minutes.
• Aged accounts payable schedule—three minutes.
• Inventory valuation from perpetual records compared to previous month and to the prior year’s ending balance—two minutes.
• Schedule of bank loan covenant compliance—one minute.
• Sales from 10 largest customers compared to previous year—one minute.
• Purchases from 10 largest suppliers—one minute.
• Average invoice amount by month for the previous 12 months—one minute.
• Review general ledger transactions for month and year to date—five minutes.

Ongoing as Necessary

• Approve contracts and single purchase commitments over a predetermined dollar amount, e.g., $20,000, $100,000, or $250,000 depending on size of company.
• Have 24/7 on-line access to accounting system, and periodically look at income statement, balance sheets, and selected other information.

At Least Once a Year to be Performed by an Independent Accounting Firm

• Internal control review with a report or copy of their procedure’s checklist discussed with client.
• Review of one bank reconciliation for each bank account chosen randomly.
• Review tax withholding payments made by payroll service for a randomly selected month.
• Sales tax returns and payments’ review.
• State and local tax compliance review.
• Form 8300 cash reports review.
• Review one of each type of report provided to the “absentee owner”.

This listing looks involved, and it is, but with the information presented properly and promptly, the time spent for the owner should not be onerous.  Also, this is a way to control the business or organization.  The amount of time suggested is negligible based on the total time already spent each day and this will enable the owner/manager to have better control over what is likely an important asset for the owner.  Try it—it works!

A postscript is that if the business does not have the ability to provide the information shown above, that is a clear indication of a business out of control with serious deficiencies.

This was adapted from a blog posted by Mr. Mendlowitz at https://partners-network.com on May 11, 2017.

Edward Mendlowitz, CPA, PFS, ABV, CFF is partner with WithumSmith+Brown, PC, in New Brunswick, New Jersey. He has over 40 years of public accounting experience, is a licensed Certified Public Accountant in the states of New Jersey and New York and is one of Accounting Today’s 100 Most Influential People. The author of 26 books, Mr. Mendlowitz has written hundreds of articles for business and professional journals and newsletters and presented over 250 CPE programs. He writes a twice a week blog at www.partners-network.com.

Mr. Mendlowitz can be contacted at (732) 964-9329 or by e-mail to emendlowitz@withum.com.