August 2001

Budget Discussion Tops Conference

Changes in cash flow persuade financial officers in diverse industries to create highly flexible budgets, often with contingency plans to cover hard times, a recent New York State Society of CPAs panel discussion indicated.

“I developed two budgets (this year),” said Miriam Katowitz, chief financial officer with the not-for-profit 92nd St. Y in New York City. “One plan is in place if actuals are being met and everything runs right. The other is budgeted for a 10 percent loss.”

When devising a budget all department managers play a role to determine what resources are needed and what might be available, Katowitz said.

“As managers we need to explain how the budget process works to all staff and allow them to play a role in the budgeting process,” she said.

Katowitz was one of four CFOs participating in a panel discussion that took place during the CPAs in Industry Conference. Sponsored by the NYSSCPA CFO Committee, the conference was held at the New York Helmsley Hotel on June 28.

The panel discussion brought forth similarities in budget planning strategies in various industries—from educating and including managers in the budget process to balancing need with cash flow—while elucidating how diverse business helps shape a business’ future.

“Overall, we are concerned with the long-term image of the Chanel name,” said Dennis Gannon, vice president of finance at cosmetics producer Chanel, Inc., referring to his biggest budget concerns amid the current economic downturn. “We do not have traditional financial metrics in place. The biggest challenge has been within the marketing and sales department. The marketing department needs income to promote the products; however, the operating department has to agree to allocate funds for marketing endeavors.”

Instead of starting anew, Chanel builds budgets off previous years’ results and uses them as a reference to determine what areas should be growing. The budget is flexible, based on consumer spending, which management reviews to make necessary changes early in the fiscal year, Gannon said.

Budgets in other industries rely on future predictions.

“You may have steady income coming in, however, you may not have steady cash coming in,” said Don Kiamie, a principal and director at Kiamie Properties Management in New York City. Kiamie said the most important budget issue in the real estate business is the forecasting of rent. Real estate management companies rely on steady cash flow from rents to pay the bills, which can present a risk in budget planning.

“The present economy has not had an impact on the real estate market yet,” he said. “However, we look for quality tenants. We have a 95 percent to 98 percent collection rate for rent. We run about a 5 percent risk.”

Similarly, Kenneth Bailey, director of administration for the law firm Bressler, Amery & Ross, P.C., said that he and his staff review and compare monthly statements and actuals against last year’s results. This can be a difficult task in legal services, though, as a lawyer may take a case in one month, the client may or may not be billed until the second month, and the firm may not collect until the third month.

Panel moderator and incoming CFO committee chair Mark Ellis advised managers to first learn and understand their particular business and analyze where income originates. Ellis, CFO of Michael C. Fina, a giftware retailer and employee recognition company, said only then could a manager articulate to the owner how to generate income and develop a budget.

The conference included a number of presentations, including one by attorney Patrick Stanton that covered mistakes managers make that draw their organization into legal disputes with employees. Stanton advised managers to avoid unnecessarily positive descriptions of employees in their evaluations. Such language might return to haunt them if they need to fire the employee down the road. Stanton suggested managers evaluate behavior and job performance separately.

Stanton also recommended managers never assume that a prospective employee cannot perform a job because of a disability. Employers should inquire about the candidate’s ability to perform the essential functions of the job rather than assume the employee is unable to perform a task.

Neil Rosenberg, a 17-year veteran in the electronic security industry, said organizations that don’t protect their computers, networks and resources are susceptible to predators of the modern age. Dangers range from hackers who attempt to break into systems to crackers who attempt to steal vital information to denial-of-service attacks, which attempt to shut down systems altogether. Former employees can be a threat to an organization’s system, too, if the employer is lax when terminating their access. Rosenberg suggested managers evaluate their security, training, and procedures and continuously improve on efforts to protect their computer systems.