When is an accountant not an accountant?

Chief accountant, business partner, financial controller, finance director, CFO: all titles typically given to us accountants. The problem is that, for our non-accountant colleagues, these titles don’t encapsulate what’s important about our role.

One of my best bosses, the late chef Albert Roux, used to lovingly call me his bean counter. Although that was in the 1980s, I suspect many executives still view us that way. How do we change this perception? We need to focus more on what the executive team really needs from us.

In a later CFO role, I was proud to reduce the financial close to five working days and to add a commentary to the accounts – quite novel in those days. The CEO’s response was succinct: “Don’t tell me about over/under accruals – that’s accountants’ jargon. Don’t tell me about variances between plan and actuals. I signed the purchase order two months ago and I knew then we were going to exceed budget on advertising. I need you to give me your best view of future profitability, then I can make informed decisions about future production, future products and future customer pricing.” A good lesson for a young CFO.

I have come to the conclusion that very few finance departments can explain the causes of profitability to their non-accountant colleagues. They are even less able to articulate forecast profitability. Yet executive decisions are about improving future profitability, so there should be a finance role that focuses on that. Finance transformation should therefore start with the appointment of a Future Profit Officer (FPO). The focus is then clear to all.

Only in recent years have I begun to see CFOs change focus towards future profit. One of my clients needed to move rapidly from research and development mode to product marketing and manufacturing mode, and needed to raise significant private equity to do so. Rather than getting bogged down in reporting monthly expenditure, the CFO commissioned a financial model where a five-year plan was updated in real time by changes to sales forecasts derived from the e-sales data, and also by changes in production planning. The latter allowed batches to be planned bottom-up, using bill of materials functionality and a 16-step supply chain across two factories and three countries.

Using this model, the CFO was able to fulfil successive private equity requests to see different scenarios, normally within a few hours. He was also able to produce business-as-usual forecasts for executive decision-making. Only after six months or so did they start populating the reports with actual results. It gave them comfort, of course, but didn’t change any decisions. FPO in action.

Defining the role to focus on future profitability is vital, but to be successful there are other challenges. 

• Like my client above, you will need a driver-based financial forecast model. It will need to be connected to sales and operational planning. Let’s call this a cause-and-effect model. This model will then be the base for plans, forecasts and scenario analysis.
• You will also need an agile forecast process. Most companies invest a lot of time in the annual plan exercise and reporting monthly actuals. Actuals often deviate from the budget before the latter is approved. Pretty embarrassing for finance! Better to put all this effort into a slick forecast process, then derive the plan from the latest forecast. Once the forecast reflects the real business dynamic, valuable commentary can explain why the latest forecast is different to the one used as a basis for the plan, and actuals should not deviate significantly from the latest forecast.
• Data is often the bane of IT implementations. Though, data issues must not be used as an excuse for inertia. If a key piece of data is missing or unreliable, find a way of estimating it. We have shown on multiple projects that an informed estimate can be remarkably accurate. It’s far better to populate the cause-and-effect model with an estimate than to persist with backwards-looking management information. This will prove the business value that higher-quality data could bring.
• Finally, let’s deal with technology. The FPO will need to move away from disconnected spreadsheets and legacy planning tools. That’s good, as spreadsheets are for desktop. The fact is that ad-hoc analysis, enterprise-wide collaboration in forecasting, and planning processes need a cloud-based data-analysis modelling and reporting tool that allows real-time updates from mobile managers and source systems.

None of this will happen, however, unless accountants grasp the nettle by focusing on future profitability rather than analysis of historic numbers. Let’s start by appointing FPOs so that the business community at least knows what our mission is.

Twelve months after committing with its new investors to developing a three-year plan, the directors of this newly formed global software provider were under pressure to deliver. The new CFO had only historic management and statutory accounts to go on, prepared by a finance department operating with an unstable network of disconnected spreadsheets and legacy IT tools.

As a first step, an FPO was appointed. This role gave the focus necessary to bring all the key components together. That included a future-looking cause-and-effect model and redesigning the cross-departmental planning process, both enabled by the purchase of cloud-based planning and modelling software. The three-year plan including profit and loss analysis by region, channel and product, integrated with balance sheet and cash flow, was delivered in about six weeks in late 2019.

With investors satisfied, the FPO was able to move on to deal with other problems highlighted by the three-year plan. With a global team of account executives using only spreadsheets, the Chief Sales Officer (CSO) was struggling to provide timely and reliable sales forecasts. The model was expanded to provide granularity down to sales territory level, and a daily update of committee sales from the sales pipeline management system.

The CSO was delighted, as he now had up-to-date information with which to manage the sales team at an operational level. Just as important was that finance now had reliable sales forecasts, already integrated with a forecast version of the three-year plan, to use as a basis for rolling forecasts.

During 2020, the FPO was instrumental in delivering reliable sales forecasts, a sales target and quota management functionality, and sales commission forecasting – one of the biggest and previously unpredictable costs. The CSO now has a sales operations planning system and the CFO can see the impact of changes on corporate finances almost immediately.

By using the three-year plan as the base, and by redesigning the quarterly rolling forecast process, the FPO is now delivering regular forecasts. Finance can also now respond quickly to ad-hoc requests for analysis and scenarios. There is more to do, such as including the monthly performance results, and connecting an operations model for product development and IT projects to the base cause-and-effect model. It is clear, however, that the focus provided by appointing an FPO, a little over 12 months later, has enabled more agile executive decision-making based on the latest view of the future.

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