Question: Information Systems and Accounting at Finagle A Bagel

Like the hole in a bagel, any hole in Finagle A Bagel's information and accounting systems means less dough for the company. Copresidents Alan Litchman and Laura Trust and their management team could not make timely, informed decisions to build the business profitably without reliable systems for collecting data, processing them, and presenting the results in a meaningful way.

PUTTING TECHNOLOGY TO WORK

Regina Jerome is Finagle A Bagel's director of information systems. She and her assistant are responsible for running the computerized accounting system in the company support center, as well as the management information and marketing information systems. As a small business, Finagle A Bagel can't afford to spend money for the sake of having the fastest computer equipment or the flashiest software. Having a limited budget means that "it's absolutely imperative that every piece of technology that we invest in directly supports our business," she says. One of Jerome's biggest challenges has been implementing a point-of-sale system that supports the information needs of the stores as well as of the senior managers. Unlike restaurant chains that sell standard menu items, Finagle A Bagel customizes everything to the individual customer's taste. Thus, store employees must be able to record, prepare, and serve complicated orders. "We designed our point-of-sale system so that when a customer orders, the system follows our menu and enables our cashiers to deliver exactly what the customer ordered," Jerome says. "At the same time, the system collects all the pertinent financial information. Every transaction is recorded and can be retrieved by minute, by day, by store, by cashier, and by terminal." With information from the point-of-sale system, general managers can analyze detailed sales patterns before making decisions about store staffing levels, food orders, and other day-to-day operational issues.

TRACKING CASH, CALCULATING PROFITS

The copresidents use the financial data drawn from every cash register connected to this point-of-sale system to reconcile daily store sales with daily bank deposits. As a result, copresident Litchman knows by 7:30 each morning how much money was deposited on the previous day and the total amount the company has to cover payroll, food purchases, and other expenses. He also knows if a store's reported sales match its bank deposit. If not, a senior manager immediately looks into the discrepancy, which usually turns out to be some kind of error. Once in a while, however, the discrepancy is a sign of store-level theft that requires further investigation and-when warranted-legal action. Finagle A Bagel's managers use the company's accounting system to make other important decisions. For every dollar of sales, a food service business makes only a few cents in profit. Finagle A Bagel makes about 8 cents in profit from every sales dollar, but Litchman is aiming to make a profit of 10 cents per dollar. He and his team need timely reports showing retailing and wholesaling revenues, the cost of goods sold, and operating expenses to calculate the company's pretax profit and measure progress toward this profit goal. Food and labor costs constitute more than two-thirds of Finagle A Bagel's costs-so the faster managers can see these numbers, the faster they can act if expenses are higher than expected.

TECHNOLOGY DRIVES THE FREQUENT FINAGLER CARD

Thanks to new software running on the point-of-sale system, Finagle A Bagel has been able to introduce a new and improved Frequent Finagler customer loyalty card. Customers pay $1 to buy this card, which is activated immediately at the store. From that point on, the cardholder receives one point for every dollar spent in any Finagle A Bagel store. Points can be redeemed for free food, such as a cup of coffee, a bagel sandwich, or a bottle of fruit juice. The Frequent Finagler card is an excellent way for the company to learn more about the buying habits of its most valuable customers. Managers can see which menu items loyal customers buy, in which store, and at what time of day. Going a step further, Finagle A Bagel is using the card to start a dialogue with loyal customers. The company's website (www.finagleabagel.com) plays a key role in this initiative. When cardholders log on and register personal data such as address, phone number, and e-mail address, they receive five points on their new Frequent Finagler card. Finagle A Bagel receives a wealth of customer data to analyze and use in targeting its marketing efforts more precisely.

ADD A PRODUCT, DROP A PRODUCT

The technologies driving the Frequent Finagler card and the pointof-sale system help Finagle A Bagel to gather sufficient data to support decisions about changing the product line. "We add products to categories that are doing well, we eliminate things that are not selling, and we bring back products that have done well," says Trust. "Being able to know that a product isn't selling so we can get it off the menu and try something new is a vital piece of information." For example, says Trust, "We just introduced a new sausage bagel pizza based on the fact that our pepperoni pizza sells very well-better than our veggie pizza." When sales data confirmed the popularity of sausage, Finagle A Bagel began introducing it in a breakfast bagel sandwich. Now the company is looking at incorporating sausage into other menu items to delight customers' taste buds and boost sales. However, Trust and her management team won't make any product decisions without first consulting reports based on data collected by the Frequent Finagler card and the point-of-sale system.

1. Is Finagle A Bagel collecting data from internal sources, external sources, or both? What cautions apply to the sources of its data?

2. Finagle A Bagel uses information to track cash, sales revenues, and expenses on a daily basis. How does this type of accounting system encourage effective decision making and discourage store-level theft?

3. As a small business, which of the financial ratios might Finagle A Bagel want to track especially closely? Why?

4. Do you think the Frequent Finagler card has any effect on Finagle A Bagel's customer loyalty? For the firm, what are the benefits of the loyalty program?