The shortcomings of Finance Directors and Accounting Professionals

Posted by admin at 15:51 on 13 Feb 2017

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Maurice O'Shea, Managing Principal from The FD Centre for the South East describes the shortcomings he often finds with Finance Directors and Accounting Professionals.

Looking back over the businesses I have met in the last three months, I'm struck that I have encountered the best and the worst FDs and accountants. Below are two of my most common gripes with examples from real companies.

Management Accounts

I'm surprised how often management accounts fail to provide essential commercial information. It's still cash that is keeping many MDs awake at night, taking a huge amount of time to manage, yet they are so unsupported by their FDs and accountants.

Example: One MD of an £8m business takes two hours each day to produce and manage his cashflow forecast. I met him as his accountants were in, preparing the quarterly management accounts. He had hired two FDs in a row who had spent months advising him how to raise the finance necessary to provide the working capital needed to grow his business (and wanted a chunk of equity too). He still didn't know what good financial controls and reporting look like. It took 90 minutes to find £200,000 of cash from quick wins. The result is that he doesn't need to sell equity to finance his business.

Gross Margin

Another of my gripes is that the key number, gross margin, on which all else revolves, is not understood. Other costs, down to the irrelevant, get so much more attention. Why do some so neglect this gold mine of information and commercial insight? Even a cursory look often shows the 80:20 rule is working. The low hanging fruit in terms of cashflow and margin are often there. It's not hard to slice and dice the numbers and so the business.

Example: One of my FDs, a real city gent, rolled his sleeves up in a business led by a dynamic sales led entrepreneur, but with major cash issues. Once he had got the cashflow forecasts in place, a pivotal moment came when he realised that there was a major problem with underperforming salesmen. When debating this rather robustly with the MD, he made it very clear that some salesmen just had to go. A few seconds of silence followed (had he gone too far?) as the inescapable truth settled in. To labour the point, he had quickly opened up the bonnet and looked at margin and sales and found out what exactly where the real problem was. The business then started to turn the corner.

Have many professional accountants and FDs become detached from using their skills because it means rolling their sleeves up, taking responsibility and risking their reputations on the front line?

It isn't difficult. All that is needed is the curiosity about the trading model, how profits turn into cash and if that is not happening, why not? Too often we see a completed set of accounts that just look back, as if the job were done.

I asked one MD what he wanted from his FD. He said, "MDs are simple and businesses are simple. Give me on one page, in a language I understand, the key numbers that tell me what's going on in my business so that I can sleep at night."

The RM2 Partnership is pleased to recommend The FD Centre, who are specialists in their area and have an enviable record of success on behalf of their clients. The FD Centre works with businesses where turnover exceeds £1million. For more information please go to www.thefdcentre.co.uk or call them on 0870 0111491.