Is accounting a way to drive a company’s performance?

Over time, we have met many business leaders trying to run their companies based solely on their accounting software information. These discussions have intensified since we have been interfacing with accounting software.

If for the figure’s professional - an accountant, a CFO, a management controller -, accounting is more than enough to run a company, this position could only lack nuances.

What is a business management tool?

Dashboards aim to help managers better manage their company. Your dashboard should be a vector for communicating strategy, based on the concept of performance indicators, and monitoring the performances for brighter tomorrows.

Accounting is not intended to help run a business. Its only purpose is to account for changes in the company’s assets and liabilities between two dates.

There are two major movements in accounting. The first is general accounting. This was the first real standardization of the measurement of a company. And its evolution: cost accounting.

1/ General Accounting

General accounting was the first major step in the standardized use of a management tool in companies. Accounting is the census and measurement of the flow of material, legal and economic facts of your company.

It can be said that accounting is a management tool:

• standardized, because it allows us to make comparisons between several companies based on a single tool;
• chronological, because it provides a record of the operations that have changed the company’s assets between two dates;
• mandatory, since every company is legally obliged to keep accounts.

The use of accounting as a management tool dates back to the ’60s. General accounting as a management tool is, therefore, a tool that is almost 60 years old. Who still wants to manage their business as their grandparents did?

2/Cost accounting.

We jump to the 1970s, with the advent of the first spreadsheets.

Cost accounting was developed to complement general accounting. It is based on general accounting to present an economical image of its activity for management purposes.

Cost accounting focuses on the income statement. It generates various restatements to highlight the profitability of the company’s various profit centers or, more generally, the components of the selected areas of analysis (customers, distribution channels, products, etc.).

Keeping analytical accounts is not mandatory. And, we have met a few companies that can really keep cost accounting. And even fewer small companies. We have come across some in manufacturing and production companies.

A real business management solution?

Accounting considers the company only from the point of view of its assets. Accounting lacks nuance in that it erases possible impacts on clients and processes. There are a lot of topics besides finance. Only a few people wake up in the morning to increase the return on capital employed.

Accounting requires a technical and financial background. However, many managers — especially those in small businesses — have not received any specific accounting training. We are convinced that a real management tool popularizes the concepts and makes them tangible for the common man.

Moreover, accounting only reports on what has happened. As business leaders, what could — or what will — happen is by far our concern than knowing what happened. Knowing what happened is only relevant to learn how to avoid repeating the pattern again and again. We want to know what happened to understand and analyze it so that we can learn from it.

Accounting is an analytical tool, not a decision-making solution. It is a tool that is well suited for people who know — or think they know — what the (right) questions are. But the tool is not created for this purpose to make informed decisions. With accounting, I do the analysis, and I am in charge of making the decision. A steering tool is built to present the decisions (or recommendations) that arise and then present the elements that have supported the reasoning.

So… Business Management Solution or not?

Not and definitively not.

As a manager, I can’t just look in the rear-view mirror and react to events. I am looking for a dynamic management tool. I want to be able to take control of the situation: I want to become proactive. Proactivity means segmenting my customers, predicting my sales according to different scenarios, and planning my expenses and revenues. And all this, accounting doesn’t allow me to do it.

We assert that accounting can’t be a business management solution on its own for all those reasons. It might be with a strong educational background and steady business that is not subject to variation over time.

What about your experience? #TeamKPI or #TeamAccounting?

Thank you for reading!

kopilot is a digital CFO for the use of B2B SME business owners. It works well for companies having not the resources to hire a dedicated person for finances.

It integrates seamlessly with #Harvest, #QuickBooks Online, #Sage Business Cloud Accounting, and #Xero.

It takes less than 5 minutes to get the digital CFO ready. There is no-setup and nor installation cost.

There is a 14-day free trial, and the subscription is unlimited (unlimited data, unlimited users, unlimited sync), but per company.

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