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Posted by: In: Finance, Story 01 Sep 2016 4 comments Tags: ,

It’s a beautiful day. The weather is warm and nature is inviting. People’s moods are lifting and there are more smiles than usually appear in the early morning traffic in Jo’burg. It is the first Friday in September and Aldo notices that today commuters are just a bit more patient. Spring is in the air.

The drive to the office seems shorter than usual, Aldo thinks, even though he has taken his usual route. It must be the scent of the jasmine tree he passed on his way to where his car was parked. He loves the smell and relished it for a while before he became aware of his surroundings again. The smell always has a slightly hypnotic effect on Aldo. He put his briefcase in the boot of his Jaguar.

He got home late last night after being at the office until 21:00. Aldo is the CEO of a manufacturing company in Jo’burg North. He relocated his business from Cape Town a number of years ago to be closer to his most important customers – although the move was costly, it proved to be the right sauce for the pudding and his customer relationships have strengthened. With consistent revenue growth of more than 20% per annum for the past five years, his board of directors are happy and have allocated handsome bonuses to Aldo and his staff.

His main competitor, however, stayed in Cape Town and has subsequently gone bust. Aldo engineered a takeover about eight years ago and has not looked back since. Until yesterday, that was.

He received his draft financial statements from his financial director and for the first time in five years profits are down. Aldo was perplexed. “Why?” he wondered. He recalls a technique to get to the bottom of a problem, which he learned from Jim Collins: ask “Why?” at least five times. This is exactly what Aldo did at the office last night as he started to go through the company’s overhead expenses.

Why are we incurring these expenses? Why would we continue with these expenses? Why did we authorise the expenses in the first place? Why has nobody else been reviewing and interrogating these expense items? And why did nobody pick up and act on the variances?

Aldo was alone at the office as he had received the draft numbers late (another thing that he will have to take up with his newly appointed FD). But first, the numbers. Then the accountability conversation. The one thing that Aldo prided himself on was systems. He was very meticulous when they went out to tender for a new accounting software system. And today, without assistance he can drill down on any transaction to the source document and find out exactly what the expense was for, who it was paid to and more importantly, who authorised it. The word “trust” came to mind. He killed the thought immediately as he recalled his business coach saying to him, “What are the facts Aldo, what do the numbers say?”

Aldo applied his mind again to the task at hand. Line by line he went through the expense items on the income statement. He managed to get through a third before he left the office. In that third he found expenses that added no value to the company. Aldo was flabbergasted. He recognised expenses that were transferred from the merger of his competitor but were never canceled. Life policies of directors not on the board anymore, subscriptions to magazines that don’t get read… The list went on. He made a rough estimate that the business could save about 15% on expenses by putting a stop to these costly errors and bring its profitability back in line.

This is going to be a good day, this first Friday in spring. Aldo feels satisfied. A spring clean of the expenses is just what his company needs. And a saving of around 15% is a welcome adjustment to the profits.

As he arrives at the office and settles at his desk, Aldo knows that he is not done with the spring cleaning. He knows that during September some more investigations will take place. Charmaine enters his office with her usual smile and can-do attitude. She is an ‘A player’ and has been Aldo’s personal assistant for more than 10 years. Aldo recruited her after attending a networking event at the Gordon Institute of Business Science where she was the events co-ordinator. She refers to herself as Aldo’s guardian angel and Aldo appreciates this persona that Charmaine has created for herself. She is able to guard him from activities that are not in line with his highest priorities. Aldo asks her to phone Kane, his newly appointed FD to arrange a coffee meeting with him as soon as he gets to the office. It’s already 9:00.

To be continued…