Who is driving the profitability at your firm? That’s a great question because I’ll bet a lot of owners have no idea. Not who’s driving sales, not who’s driving your technology or your ideas or your services. Who’s driving the profitability? With the exception of non-profits, companies are in the business of making a profit for their owners, from the Fortune 100 firms all the way to the mom-and-pop corner stores. The question for your firm is, who is responsible for driving profitability?
You can bet that the Fortune 100 firms have people who are responsible for that. But in a smaller company, whose job is that? If we look at major corporations, the accounting department functions as a business partner. That means that they share the vision for the company and are aligned with the company’s goals – which can include profit goals, revenue, market share, product introduction, and others. Their workflows and processes generate the metrics that lend transparency to the company’s financial performance and produce a way to communicate this throughout the organization.
It’s not only keeping score, but communicating what the score is. How are we doing against our goals and objectives? And if we’re missing those goals and objectives, by how far are we missing them and how might we be able to get back on track? It’s a collaborative effort.
Here’s why you don’t have that same set up in your firm.
1. You underappreciate accounting
In his book Scaling Up, Verne Harnish states that, “The number two weakness of growth firms is accounting. It’s seen as a necessary evil to keep the tax collectors at bay. Invoice, collect and pay bills, and provide monthly accounting statements.” And that’s pretty much it. But you can bet the Fortune 100 firms don’t see it the same way based on the results they achieve. We need to change our view of the accounting function and what accounting can contribute to the organization in terms of looking forward, not only keeping score and paying the bills.
2. You don’t have the right people
For example, you don’t ask your landscaper to rewire your electrical panel, right? Of course not. So, you shouldn’t expect your bookkeeper to design metrics and look at and analyze trends and also plan for your business’ financial results or your exit strategy. You need to have the right people that possess the right skills to take your company forward.
3. You don’t have the right tools
Are you meandering through the year just hoping that this month’s results will be better than last month’s without doing anything about it?
That’s like wandering through the wilderness without your map or GPS, right? You need planning tools to help guide you: a budget; a strategic plan in the larger sense; a succession plan for you and your people in the organization; an exit or transition plan for you, the owner, as you move out of your business, if you want to sell it. What does that look like for you? All of these tools can help create or increase the profitability of your business.
Let’s face it, there’s nothing strategic about losing money. If you’re ready to increase your profitability, by upgrading your accounting function, let’s talk.