Art of Accounting: Looking at the Big Picture
IMGCAP(1)]I once had a client who felt he was getting ripped off by his salespeople padding their expenses. I found this out by walking into his office and finding his desk and credenza overloaded with files halfway up to the ceiling.
I asked the client what he was doing, and he told me he thought he was getting ripped off by his salespeople and wanted to cut it out to prop up his profits. At the time he had 250 salespeople so this would have been a substantial savings. I left and went into the controller’s office and asked what was going on. He told me the salespeople were going crazy because the boss was questioning all sorts of nickel-and-dime expenses.
I thought about this for a few minutes and then went into the payroll department and asked for the most recent payroll printout. It was a binder about three inches thick.
Now, at that time the total expenses per year per salesperson were $10,000, including traveling around the U.S. and extensive meals and entertainment. Each of the salespeople was a super-high performer in an industry where the burnout rate was quite high. Assuming that he was getting ripped off, it would be for about $2,000 per salesperson, or $500,000 per year, at most. And they would all get upset (they were already, based on the rumor) and possibly some would resent it and would leave. At the time the total company annual payroll was $20,000,000.
I went back to the client’s office and handed him the payroll run. I told him it looked like he was going to spend a few months going over the expense reports and at best save a couple of hundred thousand dollars, get everyone upset and lose some good people.
If they were ripping him off, they would probably figure out another way of getting back that money. On the other hand, if he was so concerned about cutting costs and increasing his profits, he should take the payroll run with him on a Chicago flight he was taking that afternoon and figure out how to cut 5 percent of the payroll, which would save him over $1,000,000. That was much more significant than cutting the expense reports.
The next time I was in his office it was empty of the expense reports and he was back to his normal self. And as I was leaving, at least two dozen salespeople came over to me to thank me. And, no employees were let go.
The little things annoy us, but it’s big things that make the difference. The takeaway is to help clients look at the big picture and put things in perspective for them.
Edward Mendlowitz, CPA, is partner emeritus at WithumSmith+Brown, PC, CPAs. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz (published by CPATrendlines) and “Managing Your Tax Season, Third Edition” (published by the AICPA). Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.