Ask a group of non-financial managers why they need to know about finance and accounting, or more to the point, why they want to know about it, and the answers can be rather revealing.
First by a country mile comes: ‘I just want to know what they (the accountants) are talking about.’
This covers a variety of confusions from the abundant use of jargon (do they know their profit from their EBITDA?), to the incomprehension over what seem to them arcane conventions (and yes, as you know, some are just arcane conventions).
The more vigorous the complaint about the inability of accountants to express themselves in plain English, the more such comments betray a deeper problem. Typically, it is a face-saving way of saying they don’t really understand the principles of financial and management accounting.
That includes, and you may well shudder at the thought, going beyond their profit and loss and considering balance sheet implications of the decisions they make. Do the managers you work with really know such stuff, or are they just pretending?
A variation on the first response is: ‘I’d like to be able to understand why what happens to me, happens to me.’
I have heard a marketing director say: ‘The finance folk are a team along the corridor who reject my proposals.’
I have heard a production manager claim what they really wants to get to the bottom of is: ‘Why is it that the CFO always seems to win when we are discussing budgets?’
The general cry of ‘it isn’t fair …’, when business folk are confronted by their accountants, rises to a deafening crescendo when times are tough and cutbacks are required.
After these initial, and often rather bitter responses, the more thoughtful will start to say that what they really want is the confidence to work with their accountants to improve the company’s decision making.
The marketing director wants to know why they are always told that they spend their budget too quickly, and more importantly, why does it matter if it’s in the budget anyway?
The sales director wants to know why they are told to press customers to stick to their payment terms, or even to offer discounts for early payment, when what the customer really wants is extended credit, and all our competitors are offering this. In any case, that next big sales opportunity is just getting warm.
The operations director is told that they are sitting on too much stock, yet the sales people always explode when they run out of something. What they want to know is, why is it a problem, and what is the right level of stock?
The buyer is pressed to ask suppliers for improved terms but what they would much prefer is for those suppliers to do them some real favours on developing new products. Who’s right? The buyer or the accountants?
And how could they discuss the financial pros and the cons of each?
Once managers are able to discuss such questions, not only do the scales fall from their eyes but they are ready to move on to the next level of sophistication – actively managing their own financials, with a long-term perspective. Anyone who has ever run their own business, or sits at the helm of a company, knows the truth of the next comment. Why is it that when cashflow is good, nobody seems to worry about it, they don’t even look at it, but when it’s bad it becomes an emergency demanding instant attention?
At the point of crisis it is pretty difficult to pull anything out of the hat, and so most minds must turn to cost-cutting and the accountants are called in. And that’s how accountants get a bad name – for being short-term cost-cutters.
You know it’s short-term, you know it will come back to haunt you, so why don’t you act to avoid such situations in the first place? The problem of course is that they don’t listen to you.
And the reason they don’t heed you is not because, as the jokes would have it, that accountants are rather short on certain interpersonal and persuasion skills, but because they plainly don’t understand you.
Make this an international company and the problems are compounded still further. They say that the Brits and the Americans are two peoples divided by a common language, yet after years of M.A.S.H., Monty Python, Friends, and Fawlty Towers, we seem to understand each other pretty well.
We all know about those words that mark us out – lifts and elevators, boots and trunks, nappies and diapers, vacations and holidays – and any confusion caused in communication is rarely serious, only adding to the diversity of life.
Personally, I like being offered cookies and suspect Americans are just as keen on being proffered a pint. But how about when the words move from items of general discussion to those very specific references to business and finance?
How much upset can you cause by sending an email to an American colleague asking them to send you details of their stocks?
Probably a rather more vocal level than if your US office asked you to declare your portfolio of shareholdings.
That said the American terminology is sometimes more easily employed.
British managers often get confused with the idea that you can vary fixed costs whilst no-one disputes that you can manage expenses.
Budgets, that is another one with all sorts of scope. The Brit means a well thought-out set of targets and limits, the Americans think of a low price car rental firm, until you tell them you mean their operational or business plan. Asking the UK office to submit their business plans, or to cut back on their operational plans, could lead to all sorts of un-intentioned strategic reviews.
And so it goes on – the jargon and the terminology is just waiting to catch your non-financial colleagues out, on both sides of the pond.
So the problem is actually twice the size we might perceive.
The dangers of all this are clear and go far beyond accountants getting a bad name. I only need to mention the name ‘Enron’, and we see the problems that can develop.
Because of a profound lack of understanding, managers would rather bury their heads in the sand and let the accountants look after the things they do best – the finances.
This abdication of responsibility often means that accountants are forced to make financial decisions without necessarily knowing the full impact this will have on the business or commercial situation as long as it means the company keeps trading.
So what can you do about it? Take it upon yourselves to teach them? Hardly.
Take for example EBITDA, an ever more popular measure being imported from the USA.
In order to explain this term you need to cover the difference between capital and revenue expenditure, the concepts of depreciating fixed assets and amortising intangible assets, and also just what intangible assets might be and how they occur. Can you see the eyes of those non-financial managers glazing over at the first hurdle?
Buy them a good book? Probably.
Get them trained in the fundamentals of financial and management accounting?
Well, here’s the book I recommend – If you’re so brilliant … how come you don’t understand your accountant, by Robert Cinnamon and Brian Helweg-Larsen. And as for the training, the book is based on a highly visual and participative training event that brings the subject to life in a way that even surprises accountants.
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