Businesses are run by numbers
Simon Jarman, CEO of Clever Bean Accounting, discusses the lack of value being added by accounting activities in the window and door industry.
Fresh out of university, I joined one of the renowned accounting firms, known today as PriceWaterhouseCoopers although it was called something different back then.
The prestige associated with this firm was undeniable, but I quickly discovered that the work failed to provide the sense of fulfilment I had anticipated. Most of the work revolved around year-end audits, which inherently are backward-looking. It felt akin to marking homework – a process that involved scrutinising a company’s financial records several months after the close of the financial year, with the sole objective of verifying the accuracy of their accounts. This approach contributed very little, if anything, to the future performance and success of our clients’ businesses.
Consequently, I made the decision to leave the world of auditing and transition into becoming an accountant in industry. In 1995, I joined a prominent national window fabricator and installer as a management accountant, marking the beginning of what has been an extensive career in the window and door sector.
This change in perspective was transformative. Working as an accountant in industry couldn’t be more different to working in practice. In industry, all the focus is towards driving business improvement, prioritising forward-looking strategies rather than dwelling on past financial data. I very quickly realised the immense value of robust financial strategies, systems, and processes in building and sustaining high-performing businesses.
So, what does this journey have to do with today’s window and door industry? The parallel lies in the observation that, in my experience, most small and medium-sized enterprises
(SMEs) in this sector, particularly installers, do not have any in-house finance resource (other than maybe a bookkeeper) and use an external ‘accountant in practice’ for their accounting requirements.
Unfortunately, this approach does not help them to become better businesses.
The primary accounting activities for many SMEs in this industry remain confined to compliance – fulfilling legal obligations and keeping HMRC happy. This typically involves preparing year-end statutory accounts, managing VAT returns, and handling Corporation Tax filings, among other regulatory tasks. While these activities are undeniably essential, they fail to deliver substantial value to the business.
Essentially, these activities deliver no information that helps inform smart decision making.
Good businesses are run by their numbers. Failing to do so is like trying to fly an airplane in the dark without any instruments. And those numbers need to be up to date, not received nine months after the year end.
For example, it’s important to introduce a suite of KPIs to facilitate the continuous monitoring of overall business performance – not just typical finance measures like gross margin, profit and cash, but business wide metrics such as cost per lead, marketing cost per sale, lead to appointment conversion rates by channel, appointment to sale conversion and many more.
It’s crucial to create an annual budget which serves as a roadmap for your business. Beginning with clear financial goals and objectives for the year ahead sets the direction from the outset. It defines what you want to achieve and provides a purpose that guides all your decisions and actions. It also provides a framework for assessing your progress throughout the year.
And cashflow is vital for any business. It’s rare to find a small business in this industry that does not have some cash challenges. Establishing a robust cash forecasting process helps anticipate potential cash flow challenges in advance, enabling timely adjustments and effective cash management.
The advent of advanced accounting software and technology has transformed the way businesses manage their finances. Real-time data visibility, automation, and integration with other business systems have revolutionised financial reporting, enabling companies to access up-to-date information and make informed decisions faster than ever before. By harnessing the power of technology, businesses can streamline their accounting processes, improve accuracy, and stay ahead of the competition.
Forward-thinking businesses understand that proactive financial management is the key to long-term success. Rather than waiting until year-end to assess their financial performance, these companies conduct regular performance reviews, scenario planning exercises, and sensitivity analyses to stay agile and responsive to changing market conditions. By embracing a proactive approach to financial management, businesses can position themselves for sustainable growth and profitability.
Transitioning from rear-view mirror accounting to a forward-thinking approach can pose challenges for businesses, including resistance to change, lack of expertise, and uncertainty about where to begin. However, by recognising these challenges and proactively addressing them, businesses can overcome barriers to adoption and unlock the benefits of proactive financial management.
Investing in training, seeking expert guidance, and leveraging technology can help businesses navigate the transition successfully.