Some startling findings from Hackett Group: “[Our] study found that only 22 percent of companies say they can forecast mid-term (2-3 months out) operating cash flow to within 5 percent accuracy.
Previous Hackett research also showed that only one in three companies can forecast earnings to within 5 percent accuracy, and less than half can make the same claim about sales forecasting.”
True, Hackett is a consultancy that specialises in advice on finance functions - so it has an interest in painting a bleak picture. But even if their results are only half true, it’s bad. Very bad, in fact, since cash flow failures are perhaps the major cause of companies going unexpectedly bust.
Part of the problem is that any forecast is going to be, to some extent, guesswork. But while sales managers might be forgiven an unduly optimistic outlook, the finance guys in your business really ought to be a bit better at their own prognostications.
But the status and visibility of accountants in business is also a factor. In the US, the importance of the bean-counter seems to have been widely accepted. According to “Forbes” magazine, accountancy is one of the professions actually doing well in the recession. Over here? More of a mixed bag, I think.
One the plus side, the accountancy institutes continue to plug away at the “value-adding business partner” side of the role - and all power to them. The finance director is increasingly seen as a co-pilot for the chief executive (especially in larger companies).
And the fact that finance, risk and accounting - the finance function’s pet subjects - are all high on the business agenda means there are few senior managers these days who choose not to listen closely to what finance has to say.
But how are you doing on that front? If you’re an entrepreneur, have you recruited a senior accountant to help keep the business on the straight and narrow? Have you gone for a strong all-rounder rather than a cheap-as-chips calculator monkey?
If you’re a manager, do you seek counsel from the number-crunchers? And if you do, is it more than just checking your sums or ticking decision-making boxes? The answer to all those questions should be “yes”.
Of course, those options might not be open to you. Despite the growing numbers of accountants in the UK, the fact is we need more (well, more of the really clever ones, anyway). According to a recent survey of businesses by KPMG, “Difficulty in finding and retaining skilled finance professions is the biggest barrier to change (55 per cent) within the finance function.”
So… I guess we need to invest in training and remunerating the spreadsheet jockeys. My old history professor - who warned in 1990 that growth in the profession was spiralling out of control and would leave every man, woman and child in the UK bean-counting by 2050 - would be turning in his grave.
(If you’re interested in how the big companies do it, McKinsey recently issued a study on finance function change.)
(Pic: carnaval 08 cc2.0)
