Focusing on accountancy is often low priority for management teams. But by getting a strong grasp of their figures, businesses can add significant value, enhance their products and processes, and build sustainable growth. Firebird director Brian Hayes, who trained as a chartered accountant, explains how.
“Good accountancy is about so much more than ticking boxes for HMRC”
In a meeting with the Firebird team last year, the subject of “bad" accounting came up – and was a hot topic among the group. As directors who work closely with businesses to help them grow in long-term, sustainable ways (and as people who have also run successful teams and businesses ourselves) – we’ve all seen the painful after-effects that sub-standard accountancy has on individuals and boards, and on a company’s growth prospects. Yet improving accountancy practice is often low priority for many management teams.
As a qualified chartered accountant as well as a Firebird director, I’ll be using this article to define what bad accountancy is as a guide for owners, founders and other directors. I’ll also dig in to why achieving “good” accountancy is an important opportunity that every business should take. (Spoiler: it’s about so much more than ticking boxes for HMRC…)
“A number of companies don’t know their actual true profit”
There are many ways to interpret what “bad" accountancy involves, but for teams who want to achieve growth and create future-focused strategy – i.e. the teams Firebird predominantly works with – some of the biggest accountancy negatives come from figures that are incomplete; from data that is missing key information.
In travel, a number of companies will make sales, get that money in, and feel there’s plenty of cash in the bank. What they won’t do necessarily is look ahead: won’t consider the suppliers that need paying, the commission fees still to go out, the bills and office charges, and so on. One of the key risks for travel companies in particular is lead time: bookings taken today that may not depart for 6-12 months. If the business is only focused on revenue and not the profitability of the bookings then it could be storing up significant problems for the future, which may then lead to cash-flow issues.
If the business doesn’t know what their actual true profit is, they are at risk of spending money they don’t actually have.
“The right accounting gives businesses the power to look ahead and weather events”
Good accountancy provides great data and this requires getting to grips with timings – knowing when to recognise your revenue – and accurately capturing your costs. Management teams who have good visibility of their cash position, upcoming costs and cash outflows are teams that can weather unexpected events and bumps in the road. They can stay on track when customers cancel, for instance, or if a mass event like the COVID-19 pandemic is ever repeated.
Similarly, good accounting will give businesses the power to look ahead and make accurate forecasts through good data. It uses current and historical figures to understand what teams can look to achieve in sales for the year ahead; to work out how to grow sales in certain markets or areas of the business; even whether to shrink in some areas, and scale the business appropriately.
This can tell you whether you’re staffing appropriately, for example, or whether you’re building up problems for the future. Alternatively, perhaps a business is making profits and doing well, but certain elements are dragging it down and profits could be much higher without them. The right accounting practices will deliver good data that shines a light on the best way forward.
At i-to-i TEFL, where I was finance director, good accounting practices enabled us to identify which products were most profitable, adjust our selling team’s targets, and change how we commissioned their sales. This aligned sales incentives with the business’s targets, resulting in a win for both the sales team and the business.
It may be you have a destination that sells well but which costs disproportionately in terms of management time and running expenses. Or legacy products that don’t contribute to the business overall. Good accountancy leads to good data, which allows teams to break down the workings of a business into several categories to assess specifics of performance, as well as look at the overall big picture.
Without keeping an eye on aspects like this, management teams can cost the business money unnecessarily – and, in the worst-case scenario, end up with a cash crunch, where they’re suddenly needing to liquidate non-liquid assets.
“Good accountancy can adapt when you need it to”
There are a few straight-forward practical ways to improve accountancy within your business:
Ensure you have somebody keeping accurate records – this is the biggest area where management teams fall down, especially in SMEs (small and medium enterprises) where accounting is often done by one person, who can be multitasking alongside other roles.
Maintain a strong focus year-round – the mundanity of important tasks like reconciliation can mean payments, suppliers and invoices get overlooked. The right structure and processes can stop that happening.
Regularly review products and services – ask yourself: is the business paying for things that are no longer needed? Are details being missed because of a lack of time and/or understanding from the finance team or representative?
Bring accountancy experts into strategic conversations early on – someone with a good grasp on figures can help prepare new products and services differently to, say, a salesperson. Just because a team can sell something, doesn’t mean it’s right for the business and its long-term direction.
Scale up carefully as you grow – if just one person has been in charge of all your accounting processes to a certain point and it’s now time to expand, take care to ensure checks and balances are fully covered (and not duplicated) by a larger team.
Work out what you’re aiming for – as well as forecasting 12 months ahead, and deciding the metrics on how to measure progress, don’t forget the longer-term (I’d recommend a three-year plan). If you don’t stop to look ahead, you won’t really know where you’re going, or how to realistically deliver on your goals.
Retain some flexibility – the process of making a plan gives much-needed structure to a business. But that’s not to say plans can’t change. Good accountancy will adapt when you need it to.
“It’s not just about money in, money out – it’s about adding value at every stage”
The above tips are important practice for every business. They are especially important for anyone considering partnerships with private equity, or wanting to formulate an exit strategy.
At a basic level, any investor or buyer will want to see that your filing and accounts are in order. Much more crucially, they will also want to see that you understand what drives the business: that you can interpret its history through the accounts. They’ll want you to know the financial reasoning behind key performance indicators, marketing decisions, the sales funnel, predictions for leads, conversions, etc, since nine times out of ten, they’ll be looking to grow the business from there.
Showing your working – basing your expectation of sales of this product, say, in that year or for this market; demonstrating how extra spend in Y is highly likely to deliver performance in X, because this is what you’ve measured and it’s what the figures illustrate – will build confidence in the forecast, in the team and in the business.
Altogether, good accounting is a dynamic process, though so few companies know how to use it well. On the plus side, that means there’s plenty of extra opportunity for the companies that do. With the right advice and strategy in your corner, you’ll see that accountancy is not just about money in, money out. It’s about adding value for you and your business at every stage of the journey.
Brian Hayes is a director of the Firebird Partnership and a qualified chartered accountant. His specialisms include financial controls, accounts processes, cash-flow management and financial modelling, in addition to driving commercial performance.
Learn all about Firebird at www.firebirdpartnership.com
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