In 2004 while in the Marines, I had the opportunity to visit Iwo Jima. Iwo Jima was a place of fierce fighting in February and March of 1945 and provided the iconic image of the American Flag raising on Mount Suribachi. As you approach this island via ship, you first see Mount Suribachi on the horizon and then the rest of the island comes into view. In 2004 as I was approaching this island, I could not help but wonder what the Marines who would be assaulting this island were thinking as they too saw their future objective coming into view on the horizon.
How does this possibly relate to accounting?
I am glad you asked this question! Though the stakes and cost are not as high as in a military operation, every aspect of our life needs to have some type of vision or goal to it. This is also true for managing and running a business. Often times these visions are called "strategic goals" or "business plans." However, knowing where you want to go and getting there are two different things.
No company starts off with the goal of wanting to be out of business in two years. Some companies do fail, and many times due to not fully understanding or using its full financial picture. From my own experiences, this lack of understanding is the result of accounting functions being used merely as a record keeping tool or for reporting taxes. When you have an objective/vision...every tool, plan, and asset you have needs to be used for the purpose of meeting the objective. This includes your accounting system.
The value added accountant!
Please do not get me wrong. Accounting is useful for reporting historical data needed for regulatory compliance (i.e. taxes, loan covenants, etc.). However, this use of accounting is strictly a cost, with little value added other than being in compliance.
Accounting will always be a cost center in any business other than an accounting firm. The goal then becomes to turn this cost center into a "value center." This is achieved by using the accounting data to help make forward looking decisions and identify potential issues as quickly as possible. Helping to make forward looking decisions would be making cash flow forecasts so capital can be raised sooner rather than later when a potential shortfall is identified. Identifying potential issues takes the form of catching a small cost variance trend which identifies a potential production issue.
Your accounting team understanding the goals of a company is just as important as your operational team knowing where the company is heading.
Three tips to create a "Value Added" Accounting Function
Below are the 3 top tips I recommend companies take to lay a solid accounting / finance foundation for their company:
1) Don't rely on your tax accountant to set-up your books
Unless your tax firm has an understanding of your business and are concerned with the management aspect of your accounting system, do not not rely on them to set up your books. The goal of many tax firms focusing only on tax is to simplify the year end tax preparation vs providing your company with monthly or weekly management info.
2) Include your key accounting staff in strategic sales & operational meetings
It is difficult for your accounting team to help meet strategic goals if they are not aware of what those goals are. Remember knowledge is power!
3) Develop systems which are dynamic, not static
The only thing constant is things constantly change. The best way to build a dynamic system is to develop processes which focus on achieving the end goals vs one that defines every step of every process. Even the best plan falls apart when the first shot is fired.
To sum it all up!
The Marines landing on Iwo Jima had detailed operational plans laid out for them. However, the most important part of those plans was their final objective, secure the island. Even when things did not go as planned (as they usually do) each Marine knew what the objective was.
In business we need to have plans in place, but most importantly each plan needs to be pointing to an objective. This objective needs to be clearly relayed so every part of the organization can operate in a manner which moves toward that goal. As long as it is good, just, & honest...the end justifies the means.
Please email firstname.lastname@example.org if you would like additional information or have any questions.