Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.

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IT Due Diligence – What and Why

Filed under: Uncategorized — Lynda Roth at 2:39 pm on Thursday, July 23, 2009

In the course of my week, I meet numerous professionals many in the M&A (merger & acquisition) business. In our discussions the topic frequently turns to the due diligence required for a transaction to take place. The purchasing party needs to verify the information the acquisition target has provided so a group of accounting and finance professionals are used to validate the financial status of the company. The financial team works on the numbers, determines how to save cost by consolidating,  and how to grow the business.  In the end they create this fabulous financial model of what the company will look like in the future.

What I find interesting is that all the information they use comes from computer systems.  Today all businesses run at least transactional on some sort of computer system.  Rarely does the due diligence take into account the need for a review and planning for the technology and computer systems.  And what happens all too often is that lack of review and planning of the computer systems and information technology results in the demise of a beautiful financial plan.

What do I mean by IT due diligence. IT due diligence falls into 3 major categories:

1.   A review of technology, systems and processes that currently are used by the acquiring firm.  This is important to understand the ability of the acquiring entity to absorb the acquisition(s).  

2.  A review of the acquisition’s technology.  This would include evaluation of

  • Infrastructure (hardware and software) to determine its life, the cost of support and the skills required to support it.
  • Contracts for IT to determine legality of all licenses, transferability and cancellation requirements in each contract.
  • IT personnel review to determine the key employees required to support the existing IT structure and the skill sets that are transferable to the combined company.

3.  Preparation of a transition plan that would define the technology required for the new company and the tasks, personnel and investment required to complete the transition.

This due diligence should be done before a deal is consummated by experienced IT professionals as the results of this due diligence could have an impact on the final financial deal.

How To Loosen The Profitabilty Vice

Filed under: Uncategorized — Lynda Roth at 3:36 pm on Tuesday, July 21, 2009

On my last post I described the Profitability Vice. So what are some things that can be done to help the situation. Options come under 2 major areas – reducing key expense areas and becoming more efficient.

As I mentioned in my previous post, there are companies today that will come in to your organization and review major expense areas such as freight, payroll processing, credit card services, insurance etc. The majority of these services are paid based on actual savings.

In this post I want to focus on becoming more efficient. While there is alot of talk about productivity improvements and certainly a tremendous amount of technology available that promises productivity improvements few companies have realized the value of their investments. Why is that? In my experience the primary reason is that businesses rarely make changes in the business processes to improve efficiency. So what can a company do? The first place to focus is on the current ERP (business accounting) system that the company is using. Some of the common issues I have found in clients I have worked with are the following:

1. The company does not use the Purchase Order module of their system and as a result the AP department has numerous manual processes required to approve and pay invoices. When an electronic purchase order system is used with embedded rules, automated workflow and matching of receipts, all the information exists in the system for the AP clerk to enter and pay the invoice without delay.

2. The company has not upgraded their system in several years or has upgraded but not used new features in the system. As a result they do not have access to many of the productivity enhancing features that are available.

3. The company does not integrate technology from their bank, vendors and customers with their systems to streamline work and reduce manual process.

4. The company does not use an integrated system, instead they have modules from a variety of vendors that do not integrate with each other. This results in numerous spreadsheets and manual processes being used to plug this lack of integration.

5. Companies do not use current options to receive business financial data and key indicators online, via email or on handheld devices and rely on paper reports or spreadsheets prepared by financial analysts. his results in numerous manual processes to prepare critical information for management and a lack of critical timely informaiton.

6. Companies do not allow non-financial employees to use the system and enter data. This results in multiple duplicate functions especially when the company has multiple locations.

7.  Companies do not utilize add-on technology such as web-based functions, document imaging, handheld functions, etc. These new technologies provide added ability to eliminate manual processes, reduce time and resources.

If any of these areas sound familiar to you then you have some easy ways to quickly improve efficiency.