Profits are down
and costs are rising.
Who are you gonna call?
Nearly six years ago, Ross Environmental Services Inc.'s economic outlook
seemed grim. A December 1995 fire had ravaged its Eaton Township hazardous-waste
incinerator, and business came to a halt when the plant shut down for six months
following the incident.
With virtually no revenue to replenish company coffers, and financially bleeding with expenses, Ross felt like a startup all over again, says Maureen M. Cromling, president and CEO of the family-owned business founded in 1949.
'We had to maintain our employee base. We had to literally go out and resell and earn our customers' business,' she says. 'It was a huge challenge, and it took us a number of years. We are still rebuilding in a lot of ways.'
For more than three years during the rebuilding process, Ross worked with Akron-based Bober, Markey, Fedorovich & Co., a business consultant and CPA firm that refocused the company's efforts to become profitable again.
'We have worked with them since then to develop key indicators,' says Cromling. 'We can track financial results in the company that act as indicators, or actually give us a leading trend indicator, so that we can proactively deal with issues before they become critical.'
In Ross' case, Jim Merklin, a senior manager at Bober Markey, says his firm worked almost as an outside CFO to help executives assess their objectives month to month. Bober Markey evaluated Ross' pricing of waste handled by the incinerator and then reviewed different sources — big chemical companies or third-party brokers — to assess where the company wanted to position itself in the market.
'[We worked on] how to build their volumes back up to where they could first break even,' he says. 'Ultimately, they have been able to become profitable.'
But in today's topsy-turvey business climate, it doesn't take a catastrophic incident to convince a company to seek advice from an outside accountant. Many businesses are turning to professional-services agencies — or accounting firms — for profit-enhancement and performance-management consulting.
Ken Haffey, managing partner of CBIZ Business Solutions of Cleveland (formerly known as SMR Business Services), sees these types of specialized services as countercyclical. When business is good and the bottom line is far into the black, most executives don't consider the services of an outside consultant. But when things turn bleak, Haffey says, the common executive reaction is: 'Who out there knows how to help me and maybe rearrange this shop floor?'
Removed from a company's internal situation, a professional-services adviser affords a unique perspective, says Mark Bober, partner at Bober, Markey, Fedorovich & Co.
'We are not entrenched in the operations of the business, and we are exposed to numerous [other] businesses,' he says. 'We've got the luxury of being really the only outside adviser that gets in behind the company's numbers and behind how they run the business on a year-to-year basis.'
An accounting firm's involvement can last two to four weeks, cost upward of $30,000 and typically involves specific issues, compared with long-term services that may lead to both sides eventually forgetting the original intent, says Sam Johnson, a partner with Ernst & Young LLP and the leader of the firm's business-risk service for the Lake Erie area.
These days, Johnson says, clients don't have an appetite for projects that lack a quick economic return. Instead, after some consulting, clients begin to understand that there is so much 'low-hanging fruit' in their basic business process that an overhaul is not really needed, he says.
'Let's just take the process we've got and make it more efficient and make it better controlled, so we can stop the revenue leakage and spending too much money,' he says.
Most of the time, a company receives a good return on investment with an accounting consultant, and Johnson says firms commonly realize returns of two to six times the cost of the service.
'We went in and looked at a client's accounts-payable process, and we ended up saving them $3.5 million,' Johnson says. 'What [the client] didn't realize was that they would go out and negotiate a contract with a vendor, and it would say we are going to pay $2 per widget, but the next six months they paid $2.83 on the invoice because nobody went back to compare it to the contract. Then we come and look at that contract and say they owe you an 83-cent credit on every unit that you bought.'
Firms may suggest performance- management consulting to establish attainable baseline goals for the client company, says Tom Bechtel, a partner in the Cleveland office of Cohen & Co.
While companies already may have established certain goals, the high growth rate of the past few years most likely overshadowed them as executives became consumed with keeping up with unprecedented growth, Bechtel says. The recent slowdown gives these executives, with the assistance of a consulting firm, a new opportunity to re-evaluate the true drivers of their business, he says.
'Evaluate how your company keeps score,' he says. 'Don't just look at the numbers on the financial statement, but analyze the pieces of the puzzle that get you there. Each aspect of your business — sales and marketing, operations, people and management — all have factors within them critical to your success.'
With goals in each of these areas, a company can prioritize and manage business processes, Bechtel says. At the same time, it's important to relay those initiatives to employees.
This is similar to what WellCorp Inc., a 7-year-old Solon-based national health and wellness consulting group that serves large corporations, recently accomplished under Cohen & Co.'s guidance.
'Our company does a lot of things well,' says WellCorp CEO Cheryl Agranovich. 'We just want to do them better than well.' WellCorp identified five initiatives to focus on through the restructuring of its business: New hiring approaches; a formalized marketing plan; specific training guidelines; teaching employees the financial realities of the business; and incentives for improving quality and productivity. The one-year process allows the company to attack each goal in incremental steps and track successes at monthly management meetings attended by Cohen & Co. reps.
Profit-enhancement consulting, another form of outside professional input, takes on any number of directions, from shop-floor realignment to installing the appropriate technology in the workplace.
Daniel Ciccarelli, president and owner of Reliance Title Agency Ltd. in Independence, needed to find the right computer system and network for his seven-employee real estate title company. After budgeting about $6,000 for a new computer system, Ciccarelli met with a CBIZ consultant who explained that the plan would initially save him money but would cause a long-term headache once the technology became obsolete.
By spending an additional $4,000, Reliance purchased four high-speed Dell computers that could link together with a 10-port network hub and main file server with a backup server.
'Not being that knowledgeable about computers, I could have saved myself $4,000,' Ciccarelli says. 'But in 12 months or two years, I'd be investing another $6,000 because that system wouldn't have been expandable.'
In some cases, companies are aware of a problem but unable to dedicate time or expertise to assess the issues, says CBIZ's Haffey. The bottom line, he says, is that executives simply want clear solutions. 'It's been our experience that people in an organization will bring up these points year after year,' he says. 'Companies will say, We think it's this, but it might be that. If it is, can you help us with that, too?' '
Without overhauling the entire business, most consultants agree that profit-enhancement opportunities are generally simple to implement and will result in cost-savings for a company almost immediately.
'Reducing your sales force or reducing your people on the production line is not always going to increase the profit-ability of the business,' Bober says. 'It's not always cutting cost; it may be working smarter.'
Bober says that one of the first steps his firms takes in a consulting situation is to benchmark its client against the industry it operates in. It's part of an education process with clients that helps isolate 'break-even points' and understand the fixed and variable components of doing business in their particular industry.
'A lot of companies are out there either taking business they shouldn't take or not taking business they should take and not knowing the consequences,' he says.
Acme Stores, a 16-store, family-owned grocery-store chain in Summit, Stark and Portage counties, wrestled with these issues after it had downsized, remodeled and changed vendors between 1995 and 1998.
In 2000, Acme executives faced the challenge of efficiently managing the company but lacked the time and expertise to review every system, process and procedure.
'Having someone on the outside evaluate something like our relationship with vendors and the paperwork going back and forth is a healthy thing,' says Steve Albrecht, president of Acme Stores.
Acme enlisted the help of Bober, Markey, Fedorovich & Co. to — among other things —review its systems, paperwork, and check-in procedures, and to visit its vendors to evaluate their processes and procedures of billing Acme.
'There is a large chunk of paperwork involved in making sure that the inventory
we get is the inventory that we ordered at the price we negotiated,' says Albrecht.
The consulting engagement, which began in October 2000, lasted almost four months
and saved the company 'tens of thousands of dollars,' he says. It also resulted
in more accurate pricing, better control of inventory and better gross margins,
he adds.