Imagine you’re driving down the highway, accelerating your speed as you want to pass some cars… and your eyes are glued to the rearview mirror, ignoring the view of the lane ahead through the windshield.
For years, this is what public accountants have done, waiting for a whole year of results to go by and then looking in the rearview at that data to organize and report on it. The conversation is so fixated on the past numbers, the road ahead is not being discussed or advised nearly well enough.
Compliance is absolutely critical, I am not dismissing this. It is just that it is becoming easier (both faster and cheaper) to keep financial information up to date so that better analysis can be done sooner. With cloud computing software that has rules based matching, or more advanced RPA solutions like Botkeeper, bookkeeping is becoming a commodity. There is no longer the same amount of highly experienced hours needed to keep a clean set of books. The hours needed are the critical eye review or the complex accounting treatments, or the set-up of those rules/automation.
So with that context, the time that was historically spent on that can now be spent somewhere else…and where better to look than through the windshield.
Traditionally FP&A has been viewed as an ‘in-house’ finance team exercise. However reality is for a lot of privately owned companies, that is not an expertise they can afford to bring in. Hence the creation of the CAS practice, where firms are stepping in to be that extension of a finance team (and often at better hourly recoveries than compliance).
So, what sort of data needs to be used when looking ahead?
We know that business owners ultimately care about one thing: wealth creation (full disclosure: this was a soundbite from an advisory leader at a large firm we work with that has really stuck with me).
That is why talking to business owners about business valuation is so important. Tracking and discussing business valuation over time can act as mile markers on the way down the highway. Business owners can set their destination and their ETA, but how far are they from their goal, and can they get there in time? The only way to know is by having those mile markers!
It is also important to have the right information on your dashboard of how things are currently running. Understanding what key ratios and metrics are trending up or down, and how they compare to industry standards, give you the ‘check engine light’ type approach to knowing your performance. It is diagnostic, and then the mechanic (or for businesses, their professional advisors) can help prescribe and fix along the way.
How do I get started?
The first step is always your own and your firm’s education on these topics (reading this is a good start!). Becoming comfortable with the concepts of business valuation and key metrics is sometimes a skill taken for granted, but even us accountants often need support in feeling well-versed. Learning resources like this Accounting Today Webinar can help you with that.
Using a platform like interVal is an all encompassing business valuation and health tool that gives advisors all the reporting and guidance to move you into this.
Safe driving and enjoy the journey!
Author: Dave Bunce CPA, CA
