I am an accountant! I know. We’re (supposedly) a boring bunch. In reality, however, I am proud of my profession, and there are some very good reasons why program and other stakeholders should think like an accountant — not all the time, but certainly from time to time. Here are six of those reasons.
1. Ask questions like an auditor
Many accountants trained as auditors, and I am one of them. In fact, my wife sometimes reprimands me for auditing her when I ask too many probing questions about her reasoning for something. never take anything at face value and really get to the root of the issue at hand. Why is this important? Well, if something doesn’t smell right, there is usually a reason for it.
2. Weigh up the risk in every potential new project or strategy
When a senior person in a business comes up with a new idea, what typically happens around the Boardroom table is everyone gets excited about the upside. People see dollar signs, new opportunity and interesting new projects. Everyone wants to jump on the bandwagon. But who is weighing up the risk? Risk or potential downside is too often overlooked in favour of the potential of the new idea. What is the worst-case scenario? What are we potentially giving up to explore this new opportunity? What is the breakeven cost of doing this? If we reallocate resource over here, what happens over there?
3. Practice double-entry bookkeeping
In 1494, the Franciscan friar and mathematician, Luca Pacioli, documented the double-entry accounting system. It is written that he warned Venetian traders not to sleep at night until the debits equalled the credits.
4. Understand your critical numbers
It’s one thing to notice that sales are down year on year, or below target. But it’s yet another thing to understand why. A good accountant will get you very focused on the key drivers of revenue, cash flow and profitability in your business. If your sales are down, you need to be able to pinpoint the cause. Did you lose too many customers? Or not acquire enough new ones? Or perhaps you simply didn’t have the volume of transactions that you were forecasting.
5. Budget for everything — and forecast your cash flow
It’s important to understand the timing differences between sales revenue and cash inflows, expenses and cash outflows. If you need to buy a new machine, how are you going to finance it, and what’s the impact on your cash position?
6. Look at the return on investment on everything that you do
Most businesses could eliminate 5-10% — sometimes more — in costs by focusing on this question: are we getting the very best return on investment for this cost or expense? View all of your business expenses as an investment. If they do not contribute in some way to revenue generation, protection or growth, why do you have them? A good example is advertising. Most small businesses advertise in two or three places. But few understand the return on investment on each campaign. Because of this, they simply renew the advertising each year instead of questioning which of the three campaigns got the best result, then doing more of that one and cutting out one that loses money. You can apply this thought process to all of your expenses.