Are Accountants Really Boring or Really, Really Boring

Are Accountants Really Boring or Really, Really Boring

I started to write a technical piece, but I was distracted by the eternal debate that appears to have started again.  Are Accountants really boring or really, really boring.

Yes, I am an Accountant and yes I am part of a firm of accountants, in fact I am a Chartered Accountant and part of a firm of Chartered Accountants.  I have lived with this all of my working life.  I trained as an Accountant and qualified as an Accountant (although, I do not have an Accountancy degree, it was Economics).  I have worked in business, as a finance director, which is like an Accountant, just more decisive.  I have faced the stigma and the ridicule, the tumble-weed silence when someone asks you what you do.  I consider myself a fairly confident and comfortable individual, married with children.  The stigma of instantly explaining that I am an Accountant usually means that I tend not to tell new acquaintances what I do.  I tend to have a good chat and sometimes later in the discussion I get asked the inevitable question and usually I get the same response, “No, …. Really, … You don’t seem that boring.”

I have read recently how the debate continues, Accountants are boring.

So I have taken some time to have a look at this, …. Sensibly and with the respect and gravitas that the subject deserves.

The Science of It

It appears that in 2005, the City University of Hong Kong proved that accountants were boring and this was due to using dull words and dull methods of communication.

http://www.telegraph.co.uk/science/science-news/3342652/Its-official-scientists-prove-why-accountants-are-boring.html

Now, I am sorry, but I think that you will find, that if you study any specialist talking through the technical areas of their roles, it is boring to others.  Physics and rocket science hardly makes great after dinner conversation, but Hollywood can make it look like that they are all Tom Hanks.  And anyway, an academic study to prove that accountants are boring, surely that has to be the apex of boring.

Technical or detailed aspects of any job will be boring but cannot make you boring.  All jobs have a level of technical knowledge and expertise; Formula 1 engineers are intensely technical, yet are seem to be glamorous. Honda pride themselves on the attention to detail and market that as a key USP for what they do.  Professional decorators watch paint drying for a living, but they are not labelled as boring as Accountants.

In fact the technical point and the issue that even Accountants are different can be seen in the categories that in the Accountancy profession, we find ourselves labelling each other, finders, minders and grinder.  The differences between those who are good at getting clients; those that build relationships and those that do the numbers.

The Butt of Many Jokes

Accountants tend to be the butt of jokes and they centre on the boring tag:

An Accountant is:

• Someone who uses their personality as a form of birth control (I have two sons!)
• Someone who makes a bold fashion statement by wearing a blue suit instead of grey
• Someone who isn’t really boring, they just get excited over boring things
• Someone who does not have the charisma to be an undertaker
• Someone who does not know that Gap is a clothing store

An extroverted accountant is one who looks at your shoes while he is talking to you instead of his own.

However my favourites have to be:

There are three types of accountants in the world, those who can count and those who can’t!

There once was a business owner who was interviewing people for a division manager position. He selected an engineer, a mathematician, a physicist, a logician, a social worker, a lawyer, a trader and an accountant to interview and decided to select the individual that could answer the question “how much is 2+2?”

•       The engineer pulled out his slide rule and shuffled it back and forth, and finally announced, “It lies between 3.98 and 4.02”.
•       The mathematician said, “In two hours I can demonstrate it equals 4 with the following short proof.”
•       The physicist declared, “It’s in the magnitude of 1×10¹.”
•       The logician paused for a long while and then said, “This problem is solvable.”
•       The social worker said, “I don’t know the answer, but I am glad that we discussed this important question.
•       The lawyer stated, “In the case of the Crown vs. Svenson, 2+2 was declared to be 4.”
•       The trader asked, “Are you buying or selling?”

The accountant looked at the business owner, then got out of his chair, went to see if anyone was listening at the door and pulled the drapes. Then he returned to the business owner, leaned across the desk and said in a low voice, “What would you like it to be?”

Why is the last joke funny? Yet it speaks volumes about why Accountants are not boring.  It is not that we cheat or that we have an array of despicable tricks (ish).  It is that we are trained to think laterally, finding an answer and solution for our clients in what we do, despite apparent problems and issues.  We try and cut through the issues and problems and solve the problem, in whatever way we can.  We are solution providers and aim to get clients where they want to be.  There is no such answer as no and there is no such statement as “It cannot be done.”

Glamour and fame does not necessarily mean that you are not boring

Living with the stigma of being an Accountant has meant that I do not immediately tell people, as I explained earlier.  Yet it can appear that working in the more interesting world of showbiz can mean that you are instantly seen as interesting and glamorous, even if in reality you are, well, boring.

Everybody has an odd story about meeting a TV celeb and I am not any different.  Mine comes from meeting a celeb as part of the hobby that I have, a hobby that used to be seen as unusual and weird unless you were Welsh or gay with a Judy Garland obsession, I sing.  But now since the advent of Last Choir Standing, X Factor, Britain’s Got Talent and now Glee, it seems not only acceptable, but actually cool.

I was actually taking part in a large choral piece with a group of choirs and we had an afternoon rehearsal before the evening performance.  I stood next to a chap, who I did not know, and spoke to him during the coffee break.  Now I usually  have a high tolerance for boring people but he was pushing that somewhat and he started to say to me that he likes singing but “with his job” he does not really get enough time to join in with singing stuff.  Now at that time, I was going to ask what he did, but I did not get the chance and we carried on chatting or he carried on talking at me and he kept dropping in with, “of course with my job I don’t get a lot of free time and of course with my job I am out and about a lot.”  Well, I kind of got the message, but decided that I would not ask him what he did, let alone realise that I was supposed to know already.

Afterwards I was asked by the others around me, what was he like? What did we talk about?  I did not know that he was a famous TV presenter (of the DIY/house-changing/gardener-ish ilk), yet I declared that he was ok, a bit boring and pretty self-centred.

A lot of people in business say that perception is everything.  I think that is true in this case, he was perceived to be interesting and famous, and I am sure that it is true about Accountants.

Accountants in business and as leaders

The UK has about 50,000 family doctors, but nearly 280,000 professionally qualified Accountants.  That is a lot of boring people.  At any one time there are 165,000 registered students training to be Accountants.  That is a lot of young people wanting to be boring people.

Around 80% of FTSE 100 Companies have at least one Chartered Accountant on their main board of directors.  Many Finance Directors go on to be Chief Executives and prove to be successful, ok Gordon Brown did not do that well.

And Accountants have gone on to fame and fortune and have shaken off their old image as being boring:

• Barry Hearn – Boxing manager and sports events promoter
• J. P. Morgan – This famous financier and banker
• Pádraig Harrington – The former PGA and Open Golf Champion
• Lee Van Cleef – Hollywood star of spaghetti westerns
• John Major – Former British Prime Minister and often described ‘Baddest Man on the Planet’ (…no wait that’s Mike Tyson). Major trained as an accountant. Some might say, “Unsurprising!”
• Kenny G – The saxophone player
• Josiah Wedgewood – As in Wedgewood the potter.
• Luca Pacioli – Big mates with Leonardo Da Vinci.
• John Grisham – The best-selling author, and I thought he was a lawyer
• Robert Plant – The Led Zeppelin rock legend
• Cecil Parkinson, former Conservative MP and now Baron Parkinson

And for those in the West Midland who have already have heard of Peter Murphy, he was included in an article in the FT in December 2010 as the story of the Accountant who went on to feature on the South Bank Show, meet the Queen and play harp for Queen Anne-Marie of Greece.

Has Accountancy made me boring?

I do not believe Accountancy has made me boring, but I let others be the judge of that.  I do believe that it has given me an insight into how businesses work and what does not work.  It has given me insight into how you can build a business, sustain a business, the importance of supporting structures for business, for operational issues and improvement, the importance of strategic thinking, of assessing where you are now, where you want to get to and how to structure a plan of how to get there.  It has given me an insight into finance, into cash management and working capital and it has given me insight into taxation, what can be achieved and what cannot be achieved.  It has given me an insight into leadership and change management and what makes organisations work and what deters them from working well.  It has given me an insight into recruitment and appraisal and how to challenge others and help them improve, how to empower others to improve the business and to enhance the team, their skills and achievements as well.  It has allowed me to work with a large number of businesses, helping them achieve their goals.  It has given me an opportunity to understand the real meaning and importance of good marketing and sales as the lifeblood of a business.  It has allowed me to be involved in marketing initiatives, new start-up businesses, new funding initiatives, working with banks, with other business organisations, with universities and new technologies.  I have worked on business turnarounds, helping business turn a corner and re-build.  I act as Finance Director for a number of innovative start-up innovative product businesses, new technologies and leisure businesses.  It allows me to talk to and meet new contacts and potential new clients on a constant basis.

If all of that means that Accountants are boring, then, well I am ….. boring I suppose.

Steven Mugglestone BA FCA, McGregors Corporate, More than just Accountants!

McGregors Corporate are a Member Of Probiz Tax.  We provide Innovative Tax Solutions to Owner Managed Businesses.  We are relentless in helping businesses.  Here are some examples of how we do that:

Accelerate Your Business Growth and get supported with Grant Funding.
http://wp.me/pQyUg-29
Midlands Investor Network – Launch Event and Update
http://wp.me/pQyUg-25
How an FD drives a business when sometimes Accountants are just catching up
http://wp.me/pQyUg-j

We like to keep things simple, for ourselves and our clients;
We build our business by reducing our clients’ business and taxation costs;
We build our business by increasing our clients sales;
We build our business by helping our clients succeed in their business;
It is that simple and we meet you to discuss all these things for free;

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

To Budget or Not to Budget, That is The Question

To Budget or Not to Budget, That is The Question

I have just read a number of articles and discussions in an Accountants discussion group about why a business/organisation budgets and whether it is necessary at all.  The discussion was heated at times (for Accountants), and it was interesting to read both accountants and non-accountants views (particularly those who view Accountants as unproductive evil bean counters whose sole purpose in an organisation is to suck the joy out of life).  I do not usually read Accountants discussion groups, as I usually acknowledge that Accountants are unproductive evil bean counters whose sole purpose in an organisation is to suck the joy out of life, but the discussion did touch upon a number of really key issues.

To a Finance Director or a Strategic Director the answer is simple; in fact the answer is why are you asking.

Business improvement and success is down to people, people, people

The success of any business does not (usually) just happen, in a Field of Dreams kind of way (i.e. if I build it, they will come).  Success, improvement and continued success of all businesses and organisations are down to a number of key factors:

• People, people and people (and probably people)
• Leadership, management and delivery (people, people and people again)
• Marketing, networking and sales (what people are you selling to, how do you find them, and what do they want)
• Systems and processes (tools being developed by people to help people)
• The products or services (for other people by your people)
• A plan to bring it all together (created by people for people)

We could digress down a route of leadership, management, journeys, buses, architects and builders etc., but the purpose of the blog is to concentrate on budgets.  We have already started our advice on successful change management, http://wp.me/pQyUg-28, and budgets and budgeting plays an important part in the changes for the better.

Given that people are the key, how can budgets really help to add value and drive a business?  Whilst business is about people, people are only, well human people, and we need help, structured help and systems.  Hopefully we can highlight some of those areas below.

Understanding and the starting point

All businesses are aiming to achieve something as, I would hope, are all people.  Leadership training and MBA theory would compare this to a journey.  Defining where we want to be may be one thing, but to get there we need a route map and a set of instructions of how to get there.  Any instructions for a journey, however, need to define where we are now.  Most organisations understand this and reflect on self-evaluation before they start on their development plans.

A budget can be seen as a starting point to actually understanding how a business operates financially, in the appropriate detail.  It is still quite incredible the number of businesses which only rely on an annual set of accounts to reflect on the business performance.  These accounts are usually prepared by their accountant up to nine months after the year end and provide little in the way of real support and direction for a business.  I read today that the key to success is to channel 80% of our time in effort in developing the opportunities of the future, rather than dealing with the mistakes of the past, and pretty much a large number of businesses are doing the opposite.

Many owner managed business people often claim that they completely understand their business, the gross margins, the product mix, the cost of production, the cost of developing, etc., etc., but actually when they look at the accounts, nine months later, they tend to find that they were wrong and we are now a year behind to address it.

Many people have said that accountants know the cost of everything and the value of nothing, but having a robust budget that allows an understanding of what is business is doing at the moment is the key starting point to being able to develop the business, improve the business and achieve its ultimate goals.

Spotting the improvements

At the early stages of using budgets, often a common quick win is to identify where improvements in profits can be obtained.  If budgeting is new to an organisation, it is likely that that organisation has been doing things pretty much in the same way for a considerable time.  Back to another saying, if you carry on doing the same thing the same way, you are likely to get what you have got.

The process of developing a budget to fully understand the operation of a business will produce the ideas and solutions to obtain improvements.  If it does not and your accountant does not help with this, it is more than likely that your accountant has never been a Finance Director within a business and has never had to tackle profit improvement.  Try talking to a Finance Director or an accountant who has been a Finance Director and I am sure you will be surprised at the improvements that can be found very quickly.

Executing the plan

OK, so we now understanding where we are and we have set a plan to reach our business aims (that bit, together with business turnaround and further change management, we will look to develop in other blogs, but we are sticking to budgets).

The budgets for each area, department, product, improvement etc., can know be used for control and evaluation.  A strategic plan will consist of a series of stepping stones and milestones of achievements, both operationally and financially.  Budgets can be used as a financial route plan to both control and evaluate, to ensure that the business is on course.  As with any journey, we need to understand that if we are going off course, we have the process and system in place to be able to identify this as quickly as possible, to be able to rectify this and head back on course.  As an analogy, if I am planning a trip to Edinburgh, I would hope that I realised that I was off-course before I reached Cairo.

Back to People

Budgets are just numbers really and I have already said that the key to the success of a business is people and good people change management http://wp.me/pQyUg-28. Again, budgets can play a vital role in this as a toll for communication and motivation.

All good and successful businesses provide regular and relevant channels of communication to their team; it is the key to all great organisations and their success.  A budget can be used to communicate to the team how the business is doing.  It breaks down what is required of an individual or their department into easy to understand pieces.  How much can I spend on this area this month, how many sales do I need to achieve today, how much money needs to be collected today etc., etc?  Many organisations give their staff little or no information about performance and the owner/directors then wonder why their management ends in frustration from both sides.  Leaders need to be able to not only provide vision, they need to ensure that their team are fully prepared for the delivery of the plan and that includes tools, training and understanding.  In providing a plan, they also need to allow that information is used to be able to provide small simple to understand stepping stones for all of the team.

Back to another analogy, how do you eat an elephant, ……?  The answer is one bite at a time.

Not only do budgets provide a channel of communication, they serve as a vital tool for motivation.  Everyone likes to be part of success, and to be recognised for their part in success.  (If not you have the wrong team, another analogy for the journey, right people on the bus and wrong people off the bus).  Achieving and beating budgets should be recognised.  This does not have to be totally financial (although that helps), saying thank you, a round of drinks or a box of chocolates can really help when dealing with bite size budget achievements and milestones.

Whilst we could go on and on, the purpose of the blog is to briefly highlight why budgets are important and provide a business with a vital tool.  Some people may say that budgets are there only to control and get in the way.  We really think that budgets can provide a business with a real opportunity to achieve their aims and fulfil their goals by:

• To provide an opportunity to fully understand the operations of the business
• To provide an opportunity to achieve initial and immediate profit improvement
• To provide a route plan, stepping stones and milestones together with support for the strategic direction and strategic plan of the business
• To ensure that the business is adequately controlled and evaluated (and this is done timely)
• To provide key communication to your team and this is a key area for successful change management
• To provide a key tool for motivation for your team and in doing so continue your plans for continued success

We aim to provide real support and advice to our current and future clients.  We see everyone as either our clients or our future clients.  We utilise our real and practical experiences as specialist advisers and Finance Directors to do this and because of our unique backgrounds, we know that we can make a difference and provide real success to our clients.

Steven Mugglestone BA FCA

We like to keep things simple, for ourselves and our clients;
We build our business by reducing our clients’ business and taxation costs;
We build our business by increasing our clients sales;
We build our business by helping our clients succeed in their business;
It is that simple and we meet you to discuss all these things for free;

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Is an audit a boring waste of money or can it really add real value to a business?

Is an audit a boring waste of money or can it really add real value to a business?

Rhetorical question, I know, but having been on various sides of the table for differing sizes of business, I think it is a relevant discussion point.

From observation and discussion and having returned back into the professional accountancy world, it seems that many SMEs can sometimes see an audit as either a necessary evil or just an “insurance policy” to have a name on their accounts in case somebody needs to refer to them for credit or banking facilities (or to sue).

It also appears that many accountants to SMEs treat it pretty much the same. Carry out an audit (all very nicely done and within the relevant standards and guidelines), but in the end they have a brief meeting with the client, arrange the formalities of various letters to sign and then that’s it done for another year.

Having worked as an adviser in a large corporate environment and as a Finance Director for a number of years, I do not believe that it has to be this way. An audit and in particular the resulting memorandum produced, can add real value to a business and provide real support.

The Key Issues Memorandum

A large formal audit environment and large audit firm may look to produce a Key Issues Memorandum document as either a by-product of the audit or to report specifically to the audit company of a large corporate client. This is likely to address the following:

• To summarise and report on the key points from the resulting profit and loss, balance sheet and cash flow of the business
• To address, report and conclude on any material issue that is significant In the year
• To re-iterate the responsibilities of the director and auditors
• To report that the company complies with the relevant legal framework to be able to sign an unqualified audit report
• To report on changes on any other relevant and specific environmental or legal framework affecting the business
• Maybe to explain the tax charge for the year
• To report on any specific areas that the directors have asked the auditors to review
• Maybe to report on controls, but more likely to report control problems
• If really exciting to report on incidents of fraud perhaps
• To report a list of minor or non-material errors found during the course of the audit

The thing is, these reports are very good, but for an SME business and business owner they could be better and even more useful.

The Commercial Finance Directors Key Issue Memorandum

Taking a Finance Directors view, we can take the concept of the key issues memorandum and make it far more commercial and of real use to businesses to be able to drive their business. Consider what a Finance Director would include:

Results for the period

Financial information is a measure, but are we measuring it against. If we sit down with a business first, the basic is what is the plan? Where are you now and where do you want to get to? To get to that position there will be stepping stones along the way. We need to consider the stepping stones and use them to guide and judge the business.

There is basic information that we can use. It does not have to a grand strategic plan; it can be done on one page. Whether it is sales, gross margins, percentages, number of widgets sold, cash generated, unit selling cost or production cost, telephone calls per hour, number of customers coming into a shop, sales per head etc., etc. these Key Performance Indications, KPIs, are vital markers to how a business is performing.

But what do we judge them against. Again, keeping things simple.

• Prepare a 3-5 plan and highlight the KPIs in that plan, use them to judge on-going performance (amend them as you go, amend the plan as well, but do not throw it away, it is the framework of your business)
• Prepare a detailed annual budget, use it to monitor and control the business throughout the year
• Report the key changes from the budget and (more importantly), what is being doing to correct and amend these areas
• Benchmark the results. All FDs will use benchmarking data to judge, review and amend their businesses performance. If your competitors are performing better than you, then you need to understand why and take appropriate actions.
• We use benchmarking data from information from a UK wide database of financial information from accountants (not simply Companies House). We also use an easy “traffic light” method of benchmarking the performance against top, middle and bottom quartiles of similar UK wide business. If you are in the red, then we need to address that area, as 75% of your competitors already have done and are performing better than you. Moving up one quartile can have a significant effect on the performance.
• KPIs are not only used to control and improve the profitability of a business; they should also be used to improve cash. Stock holding, debtor and creditor days and other working capital areas all impact on cash, and as any FD knows, when times get tough cash is king and when times get better, cash is still king.

Internal Controls

An auditor will look and report on an internal control in respect of potential fraud, areas where lack of controls may allow the opportunity to steal from the company. However, large audit companies are not whiter than white themselves in this area.

KPMG accountancy chief fiddled £545,000 to pay for his new wife’s £15,000-a-month luxury tastes
http://www.dailymail.co.uk/news/article-1208975/KPMG-director-stole-500-000-expense-claim-scam-fund-wifes-lavish-lifestyle.html

A Finance Director for an SME business may look at this differently and look at the area as controlled delegation, rather than internal control.

Controlled delegation is a more commercial approach and seeks to look at an area to free up the time of the entrepreneur/business owner from some of the area that they do not have to get involved with and allow and encourage them to spend more time on the areas that will enhance and grow the business. The controls need to be practical and allow the entrepreneur to work on the business, secure in the knowledge that those areas are appropriately controlled and reportable.

A practical example of how the information contained on an audit file and available for use by an auditor is as follows:

An entrepreneur was the main sales person for his business. He worked hard and was successful in growing sales, but in his opinion he was stuck, the business could not yet pay for another full time sales person, but the owner did not believe that he could increase the sales further in his own. On review of the monthly sales profile it could be seen that there was a consistent two months of good sales and one month of poor sales. On questioning the business owner it was ascertained that the product catalogue was quarterly and one month a quarter the owner would update the catalogue and not book so many appointments. A simple solution was that his assistant was trained to update the catalogue and report it back to the owner, allowing him to sell more. Needless to say sales increased and a future sales person was eventually paid for.

Internal controls are still very important. The report, however, should be able to come up with the practical controls that will allow the business to grow, but will also be able to highlight and recommend areas for improvement where the potential for fraud is high.

Risk register

Permanent Finance Directors, Contract and Project Finance Directors and Project Managers generally will all consider a formal risk register. Consider what can go wrong, rank them in the probabilities that they happen, rank them in respect of the financial impact to the business.

If it possible to go wrong and it has a significant financial impact, then what is in place to control and mitigate this, procedures, manuals, disaster recovery plans and insurance policies should all be considered.

A risk register that considers these areas, lists and puts in the controls for these areas is not only valuable, it is practically priceless. Generally audit procedures cover these contingent areas and can assist in the development of a practical risk register. Some of the areas, such as HR/IT control will have a practical solution and the controls can be outsourced, but the key is the risk register.

Tax area

This is practically a no-brainer. Yes the report should report on how the tax charge arises, but we can go further than that.

An audit gives insight to a business and practical tax planning can be applied to this knowledge. For example:

• Tax advantageous pension contributions to key employees/directors
• New product areas, new geographical areas and new markets may benefit from specific tax planning that can significantly mitigate the tax in this area for more than 5 years
• Company cars and benefits can also be managed within a similar arrangement as those dealing with new growing areas
• There are other tax strategies available, which will fit within the profile of the client and business, but the client needs to be aware of these
• Build-up of cash in a business may look good, but for tax this needs to be appropriately addressed. A business should have a strategy for cash extraction. Dividend v bonus is a simpler one, but there are more.
• Future tax changes need to be considered and appropriate strategies put in place. Again the audit and this document is a key tool to consider these areas and start an appropriate plan

The considerations can go further, but this is meant to be a short(ish) blog and capture some of the key points. An audit, a boring waste of money, with no practical use to the business, I do not believe so. SMEs should use an audit company that can call upon these valuable practical solutions and help while ensuring that the audit still results in the appropriate sign off of an audit report.

Without stating the obvious, I think we are one of this audit companies.
Steven Mugglestone BA FCA
West Midlands Area Director
McGregors Corporate

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

How an FD drives a business when sometimes Accountants are just catching up

How an FD drives a business when sometimes Accountants are just catching up?

Recent debates and criticism from Finance Directors say that Accountants generally do not have the commercial skills required to truly help, support and drive a business.  What does that mean; when a significant number of FDs go on to be chief executives, could you see your Accountant doing the same.  What are the skills and experience that an FD possesses, that an Accountant does not and how can those skills and experience help all businesses.

Most FDs work within a structure of their role covering how a business operates and where it is going and this can be looked at within three distinct areas, support, operational and strategic.

Support Areas

This covers some of the traditional areas that you would expect an Accountant to be responsible for, but an FD may have a differing approach to improve and support the business.

Compliance reporting is one of those areas and whilst this ensures that a company is up to date and complies with its statutory requirements to file its accounts and tax returns, an FD will also ensure that the messages within those financial statements are firmly within the company’s strategic vision and missions and that those financial statements reinforce publicly where the business is heading.

An FD will also be responsible for tax planning and overall dealings with HMRC, on an annual basis.  Whist an FD may not be a tax expert, they will ensure that tax costs are mitigated and planned for and sensible structures are in place to ensure that all relevant reliefs and tax breaks are made available to help the business, and individuals involved in the business to manage its tax costs.  As part of this, an FD will assess the risks involved to ensure that overall risks are managed in line with the strategic plan of the business.

As part of a support role, an FD usually gets responsibility for the areas that the other directors do not wish to touch.  These are usually HR, IT and insurance (part of risk control and mitigation).  Whilst larger organisations may well have separate staff and departments (usually reporting back to the FD), in a smaller organisation and business an FD is likely to outsource these and other similar areas.  Outsourcing allows an FD to ensure that the relevant risks involved in these areas are controlled and mitigated and that costs are also controlled.  However, despite being an Accountant by training, costs are not the only reason why outsourcing is considered as the risk profile and support afforded by the outsourced provided may well be more beneficial than trying to carry this out in house.

Again an area that other directors or the owner of the business may have little interest or desire to be responsible, albeit an area key to the success of a business is dealing with legal documents and agreements.  Whilst an FD is not a lawyer, they do understand what reasonable terms and conditions would include and what clauses should be in an agreement and what should be avoided or mitigated.  An FD will liaise closely with the businesses legal advisers (outsourced) to ensure that commercial matters are reviewed and considered in all of the legal agreements that the business adopts.

Operational Areas

Again this would appear to be a traditional area that an Accountant would operate within to help support a business, but an FD will have a different emphasis to ensure that the operational areas truly help to improve a business.

An Auditor and Accountant will carry out tests and comment on procedures and reporting known as internal control.  An FD sees this area as controlled delegation, the difference being that the appropriate structures and controls are put in place to allow senior members of the business to concentrate and be allowed to carry out roles that they are good at and that are crucial to the improvement of the business.  As an example, if the key director is also a key sales person, they should not be spending their time writing brochures, catalogues or processing orders, but they need to be comfortable that those areas can be carried out to the appropriate standard without them.

A real traditional area is reporting, but an FD will always ensure that the reporting format and what is reported is not about dwelling on the past but ensuring that appropriate areas are planned for and controlled.  The term key performance indicators tend to be over used but an FD will always look to simplify the reporting to concentrate on key areas that really matter and these may not always be financial.  An FD will use budgeting as a control tool for reporting, but will also use benchmarking against best performance within the business and external to the business.  This is not done to dwell on the facts that the business is performing better or worse than others in a particular area, but to understand the reasons and address accordingly.  Sometimes you find that your competitors carry out some things better than you and if you can address these areas you can make a difference to the bottom line.

The use of benchmarking, budgeting and using key performance indicators by an FD will lead to identifying profit improvement, ensuring that operational reporting is used to enhance the earnings of a business.  An FD will usually be responsible for negotiating and agreeing many of the businesses supply and service contracts.  This will mean that they will look to consider all relevant factors, model usage accordingly and ensure that competitive tenders can provide what the business needs.

Profit is one thing, but cash is king.  Businesses do not go bust because of profits, but because they run out of cash.  An FD will always be responsible for working capital and cash management.  The maths in this area is relatively simple in that with high stocks, work in progress and debtors with low creditors comes a strain on cash.  An FD will control this area on a rolling weekly basis and on some occasions and with some businesses this will be done on a daily basis, to free up cash for use in the business.

Strategic Areas

This is an area that perhaps a traditional Accountant does not readily engage with or is involved in.  An FD will have knowledge and experience of an overall strategic plan which covers customer and marketing strategies, systems and processes and people development, but whilst overlapping, an FD will concentrate on the financial areas that underpin a strategic plan.

But what is strategic activity and how can it be defined.  An FD will lead defining strategic investment and activity.  This will mean assessing where a business is going to channel its resources to improve;  an FD will ensure that investments in both capital and human resource, marketing or other activities together with other related improvements and new areas that they are undertaking have a reason and a goal and that these are appropriately considered taking account of strengths and opportunities.  The costs and impact on the business can be measured and the future impact forecasted.  An FD is ideally placed and qualified to ensure that strategic activities are appropriately considered, planned, assessed and monitored and along the way they can add to the creative and entrepreneurial flair gained from the experience in this area.

An FD would not be an FD without considering risk.  All project management and strategic plans will contain a risk register.  Full consideration of both financial and commercial risks involved in all activities are considered and recorded and appropriate mitigation and insurance will be put in place.

All businesses should consider a time plan and an FD will ensure that an appropriate implementation timetable is considered and worked to.  This may be in respect of a specific area or the overall plan for the business leading to eventual exit by sale, or perhaps listing on a recognised market.

Underpinning a strategic plan is an appropriate funding structure.  The businesses own cash generation may not be appropriate to fund longer term investments and in return some higher risk areas may not attract bank or similar funding.  An FD will ensure that funding is appropriate for both the timescale and risks related to the business’ activities and strategic plan.  An obvious key area underpinning funding for a business is the relationship with current and potential future funders.  An FD is key to this relationship, whether banking, private equity or institutional as they understand what information is required and help to ensure that funders are comfortable with the current position of the business and its future aims, goals and requirements.

In summary an FD is not just an Accountant and some of the areas above highlight what FDs mean when they say that Accountants do not have the commercial skills and experience required to add real value to a business.  Some of their roles, including controlling delegation and support areas ensure that other members of the senior management team or the business owner are allowed to concentrate on other areas to enhance the business.  Other roles and functions such as reporting, profit improvement and cash management ensure that that the business can continue to improve cash generation which leads to cash being made available to support the strategic goals of the business.

Given all of this that an FD can offer a business, the only remaining question is why would you just use an Accountant when you can have an FD.

To find out how we can help all SME businesses with this real pro-active support, experience and background or to help you source a part time FD for your business, feel free to contact me at steven@mcgregorsbirmingham.co.uk or call me on 0121 236 3317.

Steven Mugglestone BA FCA,
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.