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How do you fill the gap between the books and the board?

In many businesses there is a gap between the day-to-day bookkeeping and the information the management team needs to understand, measure and improve performance.

The gap might be created for good reasons but the bigger the company gets and the faster it grows – the more this gap will act as a  drag on profits.

A familiar accounting problem

Firstly, as a business gets going the cost of accounting may be something to be minimised. Often a part-time bookkeeper or the MD or a family member will do the work, hopefully using a recognised accounting package.

This is fine – if it’s done right.

When it’s not done right, when processes are set up that are not very efficient, you can create bad practices that embed themselves like fossils at the heart of the business and continue to be corrosive for a long time to come.

No-one questions how things are being done because that’s how they’ve always been done!

Fast forward a couple of years and the business needs to know how it’s performing in a more sophisticated way – monthly management accounts, profit centres, job costing, budgets and cashflow forecasting, for example.

Who knows how to do these things, let alone that they may need to be done at all?

If the gap is not closed at this point then profits will be hit, often despite strong sales growth and it will cost more to rectify the situation later on.

A sensible solution

Our solution is based around the idea that very few companies need a full-time finance director.

What they need is an occasional dose of experienced financial management to keep them on track as they grow.

To begin with, this might require an intensive period of hands-on help:

  • improving and streamlining processes
  • improving (or even introducing) the right level of management accounts
  • minimising risks through better credit control and cashflow management
  • training current staff to do a more accomplished job

Phase two is when the accounting is being done on automatic pilot. This is much more of an advisory phase

  • reviewing performance
  • contributing to one-off issues – annual budget, overseas subsidiary etc.
  • working with the management team to ensure targets are hit and sustainable growth is achieved

The business continues to evolve successfully, confident that it has strong financial management and that the board is getting the financial information that it needs to run the business.

But it controls its costs because it doesn’t create a full-time role for a part-time job.

 

Michael
@michaeljcaustin
 

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