So what should an accountancy firm/function/professional offer companies of today? Given the complexities of company needs and wants, it’s probably easier to look at what they shouldn’t do…
- The Rear-view mirror – stop looking in the past. A finance professional’s view point should be 5% historical, 95% forward looking. Time should only be spent on the historical data to help rationalise your company’s forecast and provide potential future risks so that companies can proactively close any gaps or risks.
- It’s not just a numbers game – How often do you see your accountant? If they are not on site most of the time or walking the hallways, then they are giving you nothing more than unqualified numbers and by unqualified, I mean how can they possibly draw a relationship between company activities and financial performance? Too often I see Operations Directors report record breaking output only to be presented with Financials that are completely contradictory with little or no explanation as to why there is a disconnect. Finance needs to be entrenched within the business to truly understand what the company does but more importantly, why it does what it does…
- Time taken to report – Stop taking weeks and in some cases months to produce company results. A 5-day turnaround is achievable even in some of the largest and most complex companies and don’t let your accountant/accounts function tell you otherwise. If you have to wait weeks to understand performance, your window of opportunity to correct or change direction may have passed.
- “It’s a timing issue” – How often have you heard this term, “don’t worry, it’s a timing issue, it will sort itself out next month/quarter”. It is the fundamental principal in accountancy (matching costs with revenue) that is so often not adhered to and companies experience large fluctuations in their margins month over month. There seems to be a reluctance or a difficulty with finance reporting or analysing company performance at a Gross Margin level, yet this is where most of the margin fluctuations occur – especially if a company operates within a project environment where they allow false margins to build up only to crash down at project cessation.
- “Jam tomorrow” – Presenting forecasts that are unrealistic/unachievable to fend off the difficult conversations. If company performance is not as expected or where it should be, this needs to be challenged and reported as soon as possible with the right people held to account. Simply creating a revised budget or forecast that puts increased expectations on future months simply to report a year end position that is more favourable is nothing more than burying your head in the sand and will undoubtedly lead to an even more uncomfortable conversation especially if a company has external investment or any form of leverage.
- Treating Management Accounts the same as Statutory Accounts – They are not the same thing, management accounts should show company performance in a way that the management team can relate to, act upon and is relevant to the company’s specific sector/environment. Management Accounts are all about KPI’s, leading indicators, market analysis, orderbooks, run-rates and cash, not simply a P&L and Balance Sheet on past performance. (Note that if you publish or have covenants, please take guidance before tailoring your management accounts)
- Investing in the wrong structure – For the most part, SME’s do not need a full-time Finance Director, having gone into a lot of businesses that have full time FD’s I was amazed at how much of their time was caught up in the “weeds” doing transactional work, preventing them from focusing on what they are getting the big money to do. Ensure that you have appropriate resources and skill sets to cover the transactional qualitative elements of the finance function and you will find your required investment at the highest level will be greatly reduced, yet your strategic focus and capability will undoubtable increase.
- Experts at non-value-adding – Stop making ever increasingly complex spreadsheets that are so cumbersome that only the creator can understand and that take more time to maintain than the value they provide. Focus on what the business really needs and not what you enjoy doing. Most exercises have a diminishing rate of return and if the rationale behind the exercise cannot be justified on a scrap bit of paper you are probably going down the wrong route…
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