Most of the time when we start a new engagement with a client the first phase involves some level of clean up or prep work. Some require more, some less, but almost all require some. Cleanup can be any number of things: in extreme cases, bank accounts haven’t been reconciled in years or the company is still using a paper ledger system. Not many of those anymore. In most cases it involves g/l structure changes, putting together a month end closing process, designing a more robust reporting package, building a budget or forecast and perhaps doing a cash plan. Of course there are many more items, but those are the typical ones.
After the cleanup phase we get into a routine of month end closing, and regular financial statement reviews with the owner or management team. The cleanup phase provides the foundation necessary to have useful regular review meetings: without timely, accurate, clear data, it’s impossible to make good decisions and recognize problems and react quickly. It’s impossible for a CFO to be effective.
After a year or two with the initial problems fixed and things running well, we sometimes have a client suggest we stop doing this or that because “we don’t really need that”. I recently had one of these discussions with a client who told me we don’t need to do a budget this year because “it’s a waste of time”.
We traded a few emails debating the merits of budgeting, and I was clearly not getting through. So I decided to wait for our next review meeting and address the subject in person.
I met with the client and I didn’t lead off the meeting with that topic, but instead went through our normal financial review. In the course of the discussion, the client asked a really great question as he was thinking through different plans & initiatives for the year. In order to answer the question accurately, a budget (or forecast) was required. I smiled, and said “Well, Mr. Client, that’s a really great question, and this is a PERFECT example of why we need to have a budget in place.” And then the light went on and we finished the budget.
It is interesting to reflect on our short attention spans, the quest for new, shiny objects, and how quickly we take for granted a process that works simply because it has become routine. It’s easy to forget what “messy” really looks like. I am equally guilty of finding a solution to a particular problem, getting results and then stopping it altogether -- EVEN THOUGH IT’S WORKING-- because of boredom, finding a new shiny object or any number of reasons. Frankly, it’s crazy. “Hey that thing we did worked, so let’s stop it now”. I’ve done this with direct mail marketing several times. We send out a campaign, get results, add some business and then stop. A marketing coach asked me “so why’d you stop?” Because it worked. We got the business. “And you don’t need any more business???” Hmmm…..
When facing these conversations, I gently remind people of what things looked like before we put a PROCESS in place to eliminate whatever the problem was that they were facing. I was told early on after launching Michigan CFO that selling “prevention” is a difficult proposition, and that has proven to be true. But the fact is that having your accounting department running a predictable PROCESS with regular review points is not exciting, sexy or likely to satisfy the shiny object syndrome. But it is VERY likely to provide you with few or no surprises, peace of mind, and a feeling that things are under control. It ain’t sexy, but it works.
What we provide is a process that delivers consistent, accurate, reliable CLEAR financial data so that quality decisions can be made based on prior experience and professional judgment. In order to make good decisions, we need to trust the information and the review process it went through. Big, well run companies do this. And small companies can, and should too.
If you want to eliminate surprises, maximize return and minimize risk, you have to actively manage your finances to achieve your goals. And as with most things, it takes boring consistent discipline to get it done.
And we get it done.
So when it comes to finance, resist the temptation to re-break what’s already fixed. Leave the shiny objects to the R&D department and stick to the boring, predictable but effective plan.
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