Yesterday, I was asked for more context about “bridging the gap between operations and finance”.
That phrase was said to me by a participant after a training workshop and I felt that it is a good summary of what I try to do.
I was a late convert to accounting, having qualified first as an engineer. I then worked in multinationals where I was exposed to Lean. I take the view that accounts reflect the underlying transactions of the business. I think of a business as a process converting inputs to outputs.
When working on projections, the framework I use is to identify and quantify the key activities of the business, then to determine the cost of the resources used in completing those activities and finally scheduling the cashflows for those costs.
I am a big believer that accounts should confirm what the business owner already knows about the business. This knowledge is built up from having good KPIs and a good understanding of the Activities-Resources-Costs so that they can anticipate the results and are not surprised by the accounts when they get them.
I like to apply the concept of PDSA to the accounts. Make a plan (P) – this is the budget or projections. Execute the Plan, Do (D) – run the business. Study the results (S) – use the management accounts to identify any invalid assumptions or gaps in knowledge. Finally, act on the learnings (A) – change the assumptions or identify and implement improvements. So having management accounts is a key part of the business feedback loop.
Finally, I see the accounts as a database of the transactions of the business and I believe they should be analysed (sliced and diced) to help the business owner improve his/her understandings.
I try to have a good understanding of what is happening in the operations of the basis. Then I consider how that will show up as transactions in the accounts.
Thinking of it this way forces me to have a really good understanding of what is actually happening in the business – the operations – and to be able to help operations to understand and anticipate how their actions will impact on the accounts.
Sorry for the length of this. You challenged me to think about something that I had begun to take for granted.