For decades, financial managers have pieced together and manipulated spreadsheets in order to report on past data and maintain the financial integrity of their businesses. Sure, if they had time, they could use these primitive tools to attempt to identify trends and offer insights. But this effort was ridden with information silos, dirty data and outdated numbers.
Fortunately, times are changing.
Have you ever wondered why organisations set an annual budget? Yes it fits in nicely with the way an organisation views performance; the way in which employees are reviewed for the work they do; and it’s easy to schedule. It’s September so it must be time to budget.
But there are also some major downsides:
Rolling forecasts and flexible plans can help companies adapt more quickly to business changes.
Change is the only constant. Yet we continue to execute annual static budgets and five-year strategic plans because “that’s what we’ve always done”. The reality is that the business climate changes daily, making assumptions that were made last quarter or last year moot. In fact, many annual budgets and plans become outdated as soon as they are finalized, often after months of effort.
The roles of today’s accounting professionals are being reinvented, requiring new skills far beyond audit, tax and compliance competencies.
The finance function is a key part of business strategy, but many professionals don’t learn the skills needed to develop strategy, inform decision making, or communicate with influence. “Accountant” remains one of the hardest jobs for employers to fill, and 50 percent of finance executives can’t find staff with the right skills. This talent gap is, in fact, a crisis.
This “Competency Crisis” has gone unsolved for decades, and it’s affecting businesses’ operations potential for future growth. The problem has been studied at length by academics and professional accounting organizations. A variety of factors, including a narrowly focused accounting curriculum and lack of on-the-job training, are part of the problem, but clearly, there is no silver bullet that will make accounting and finance professionals excel at a global level.
Even the most high-performing finance teams occasionally slip up – especially when trying to transform the way their department operates. Only 12% of finance leaders responding to a recent survey said their transformation projects achieved all of their intended business outcomes.
Through our research into finance transformation, we’ve identified five common mistakes many CFOs make:
I’m always amazed at how tenuous the link is between strategic goals and budgets. Most senior managers will claim that the budget process is there to help the organisation implement strategy, and yet when you look at the submission sheets budget holders are asked to complete, there is no link. Sure, the revenues and costs when accumulated with other departments may equate to a strategic target, but budgeting is much more than this. After all we can get a monkey to fill in those sheets and even get them approved by ensuring they line up with targets set by senior managers. But we all know that the numbers themselves are meaningless unless they have been placed in context of organisational activities.
Starting your own business is both an exciting and nerve-racking adventure, I’ve been there. Just a few weeks ago I was fortunate to meet with a bunch of people at the cusp of starting their own businesses.
At the event I ran by PushStart, I was able to share my experiences and the virtues of accounting software with these young entrepreneurs.
It’s clear that not everyone who starts a business has the same level of accounting knowledge. For some the idea of managing numbers is overwhelming, while for others they may have studied accounting at university. But I truly don’t think it matters. New online accounting solutions are making managing your own finances simpler, but even traditional desktop type products are really quite easy once you’ve had some training. In this article I’ll cover off a few of the things I shared at the PushStart event.
Many organisations budget either because they have to, or because it’s something they always do. While visiting a large client who had expressed concern over the time it was taking to open up a budget data entry sheet, I was astonished to find it had around 1300 rows and 36 columns (they were attempting to set a budget for the next 3 years). A quick calculation showed that users were expected to enter around 46,800 numbers. Now assuming that you could enter numbers at the rate of 12 a minute, that would take each user approximately 65 hours to complete! This is assuming that they don’t have to think about what the numbers mean.n>
What is a stretch target?
First of all, what is actually meant by a stretch target. This can differ depending on where you sit. As the budget holder of a sales division this may mean setting sales targets that are higher than what would normally be expected. For production this may mean producing more goods for less, while marketing may see this as attracting more enquiries than last year.
Stretch targets are by definition, pushing the boundaries on what can be realistically achieved. And each has the increased potential to reduce organisational performance – the very opposite of what they were supposed to do. For example, if the increased production volume is not achieved but sales achieve their goal, then customers won’t get what they ordered in time. Similarly, if manufacturing achieve their goal but marketing falls short, then valuable resources will be tied up in stock. Both scenarios will adversely impact the company. In the first case it will be their reputation with customers, while the second will impact working capital. The end result of both will be to decrease profitability.
Accountants are a strange breed. They love math and numbers. Many love the feeling of control. They start out young. Later in their career most experience a “coming of age” and shift from bean counters to bean growers.
We were all once young. We all experienced growing pains. This article is about the coming of age of accountants. Their maturing is an especially painful process.