During a business law class in college, the professor said something that not only would remain with me the rest of my life, but I would experience in person several times.
We were dissecting a case study on a Fortune 500 company that he was not impressed with despite a better-than average track record on Wall Street and rising demand for their products.
He cited several infrastructure problems that scant few analysts had identified and told his captive audience “remember, volume hides many ills.”
Nearly 20 years later I experienced that first hand. I had just come aboard a B-to-B magazine as an associate editor. But there were problems - we were third in terms of revenues and readership in our market and the publisher was getting constant pressure from management.
But within two years, via a series of strategic hires, laying off ineffective ad salespeople and restricting travel, the publication not only turned itself around, it recorded the best year in the company’s 60-year history.
It enjoyed that run for nearly five years. But as my professor once pointed out, there were cracks in the façade. For one, T&E was running rampant, it was not unusual for accounts payable to receive credit card bills for $2,000 meals. Car service invoices alone were running $10,000 a month. There was bloated upper management – including three vice presidents at comfortable six-figure salaries, when in truth you really didn’t even need one.
But in 2000 the market turned decidedly downward.
Suddenly volume could no longer shield the problems. Predictably panic set in. Budgets were slashed sometimes in half and layoffs soon followed. The gravy train dried up and three years later the publication was sold to a rival company.
I often think about that class and wonder how much of that is true regarding CPA firms. I’ve been in more accounting firms over the years than the Geneva Convention should rightfully allow and seen more than my share of financials from many of them.
Confidentiality prevents me from sharing any of these in greater detail but let me just say that many of the profession’s so-called thought leaders are affiliated with CPA firms whose balance sheets are bona-fide stand up material, where top-line volume does indeed hide many ills. One has generated exactly $100,000 in new business over a 10 (TEN) year span.
I can’t imagine what a thorough dissection of that firm would uncover. But thanks to a teacher many years ago, I have learned to see the forest for the trees.