EFM’s Finance Directors and Business Advisors are independent experts who can provide expert analysis and advice and hep you to make the right choices for your business.
Is the role of an accountant soon to be nothing more than a commodity? Unless they change what they offer, in most cases the answer will be yes…
With the advances in analytical accounting software, the statutory and transactional role that most accountancy companies provide will become so cheap that most won’t be able to compete.
So where does the value proposition of our profession now sit?
Whether you have your accounts function outsourced to an accountancy firm or have it in house, most of you will have had similar experiences and I hope this article pushes you to challenge the service you have had to date, not necessarily asking for more, but maybe just pushing for the ‘right stuff’…
As a relatively new accountancy business trying to fundamentally change the way in which our profession supports businesses, our biggest hurdle has been our clients don’t know what ‘good’ looks like. They have become accustomed to getting inadequate, late and irrelevant management information (MI) that tends to be so long-winded or so basic that most management teams don’t even look at it, let alone use it for strategy or decision-making. Or they simply see their accountant as nothing more than an annual acquaintance and struggle to justify investing any more in this service or department.
So, to answer the question on where an accountant’s value proposition should be:
“EFM strongly believe that finance professionals need to shake off the persona of regulatory service providers and become much more of a business partner/enabler that is so ingrained within the business they are deemed more as operational than “back-office” and produce vital MI that challenges and pushes businesses in the right direction”
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.
Finance does not have to be difficult and it certainly shouldn’t consume your time or keep you up at night. Have a look at what you currently receive from your monthly/quarterly finance reports, if you’re not receiving the below as standard, there is a good chance that your ability to proactively manage your financial performance is reduced:
· Balance of year risk
· 3 month rolling revenue and margin forecast
· 13 week cashflow forecast
· Sales pipeline (orderbook, proposals, opportunities)
· Product/Service/Client profitability
· Working Capital Reviews
· Leading indicators
· Covenant forecasting
Getting the most from your accounts function does not need to be expensive, EFM would love to hear from you about your experiences with accounts functions and see how we can support, whether it would be a:
· Finance Function health check;
· Exploring our fully insourced or outsourced management accounts functions;
· Our recognised performance pack, or;
· Engaging with our ‘pay as you go’ Finance Director service offering