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Management Accounting – Skilling up for success
By Kevin Appleby
As accountants, we can be busy all day, dealing with the stuff that has to be done. There are bills to pay, debtors to chase, reconciliations to do, taxes to file. You can be busy all day, get things done, but none of it helps the business move forward.
Don't get me wrong, all those things have to be done, and if they aren't done the business will have a problem and you might well end up taking some blame. Trouble is, in doing them you were stuck in the back office. Its very easy to stay in that back office and providing everything gets done, never be noticed by the rest of the business.
The thing is, the rest of the business team are battling against the challenges of moving the business forward. There's lots the finance guy can do to help. But how do you change things so that you can do that?
In my experience, there are three issues:
- Finding time outside the routine business as usual of finance to do the extra work that might help the business
- Having the right skills to make the difference. There are lots of things you need to know that they simply didn't teach you in your accountancy exams, or things you know about in theory but never done in practice
- Knowing what’s keeping the rest of the business awake at night
The key to you making a difference lies in the final point. First, think of your colleagues as your customers. Second, understand their biggest pain points. Third, consider which of these you are best placed to help solve.
Escaping “business as usual”
Some people reckon that over 50% of what we do is driven by habit. We accountants are particularly habitual creatures, and we have the accounting timetable to help us. Its month end, quarter end, year end, annual audit, tax season or budget time. All these things keep us firmly in the back office, and we could quite easily carry on being busy and doing what needs to be done without communicating with the rest of the business. First thing then to escape the back office is to consciously create some new habits. Habits that get you out and about with your business team, talking to them, finding out their problems and how you might be able to help.
Lets face it, your business colleagues aren’t really that interested in what the latest IFRS says; they probably don’t know what the letters IPSAS even stand for; or what the latest automations are for your cloud accounting systems. They are interested in moving the business forward, and you can help them with the right information.
As an accountant you will understand the numbers that make up your business. You understand your debtors and creditors. You understand the general ledger, you know which ledger accounts feed into which parts of the reports you publish, and you know all about IFRS and the rules you need to follow. You probably know quite a bit about taxes too, and the things you need to do to make filings.
But, do you actually understand the economics of your business? Who are your most profitable customers? Which ones drive all the support costs in your business?
My experience is 20% of your customers produce 80% of the profit and the majority of effort in the business generally isn't expended on these customers but on the other 80%. Sometimes its worse than that and all the effort goes on the bottom 20%.
So, who are your most profitable 20%? Who are your least profitable 20%? This is the sort of information the rest of your business team needs.
Can you honestly answer that question?
Have you ever been in a situation where sales and marketing have identified their favourite customers and sell more and more to them, but as sales these customers go up profits don't follow? I've been in a business like that.
Staring at the management accounts just doesn't give you the answer. The accounting numbers don't explain what is going on. In short you need to look at the economic model of your business and not the accounts, but do you know where to start?
How do you do customer or product profitability in practice? No one told you how to do that when you took your exams. But if you want to be a useful business partner to your commercial colleagues then helping them understand the true profitability of their favourite customers is where you need to be.
Read more articles by Kevin Appleby:
- Improving your Budgeting and Cost Control – Essential Listening
- Improving your Budgeting and Cost Control
- Accountants - Do you know what support your business team really needs?
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