The Unnoticed Problem
"Why didn't he tell us?!?!" our new client asked as we presented their organization's results. They were a well-established enterprise that had successfully weathered multiple storms since inception. But they had just begun to notice margin compression, building slightly over the last few years, resulting in a six-point drop.
Identifying the Issue
After a deep dive, we were able to clearly see the issue. While Sales had seemingly remained flat year over year, the composition of Sales had shifted tremendously as a much lower-margin line of business had increased exponentially. And our client knew that. But what they didn't know was that the margin on this line of business was significantly less than their system stated.
The underlying Sales and Costing subledger had not been anchored back into the Financial Statements, and folks were making decisions—pricing and sales direction—based on incorrect data. Insert heart palpitation here.
Taking Action
Not to worry. A plan of action was devised:
- Clean the data.
- Understand true costing and margin.
- Identify what we were best at producing and what clients made the most sense for us.
- Address and resolve inefficiencies that had arisen for various reasons.
- Negotiate expenses with vendors.
But first, educate the team. Hear their feedback. And get their buy-in. Without it, we would not be successful.
The Controller's Dilemma
But our client's question rung in my ears, "Why didn't he tell us?" She was referring to their Controller, a lovely gentleman who had been with the organization for an extended period. Well, here's why.
The Controller was a one-person department, handling all the day-to-day activities. From payroll to benefits to closing the books—he did it all. And beyond that, he was a classically trained accountant with very limited exposure to financial planning and business analytics. The organization didn't have an appetite for a larger footprint and greater fixed expense. Couldn't the Controller just do it all? No. No, he couldn't.
The Difference Between Accounting and Finance
"So, you're saying one person can't do it all?!?!" You got it. And we're also saying that Accounting and Finance are not the same. They're related, of course, but they have distinct roles and responsibilities.
Focus and Purpose
- Accounting: Primarily concerned with recording, summarizing, and reporting financial transactions. It involves the preparation of financial statements such as income statements, balance sheets, and cash flow statements.
- Finance: Focuses on managing assets, liabilities, and investments to optimize the financial performance and value of a business. Finance professionals make decisions about investments, capital structure, and financial planning.
Scope
- Accounting: Deals with historical data and is more concerned with ensuring accurate financial record-keeping. It helps stakeholders understand how the company has performed in the past.
- Finance: Looks forward and involves planning for the future. Finance professionals make decisions that impact the future financial health and success of the organization.
Roles and Responsibilities
- Accounting: Involves tasks such as bookkeeping, recording financial transactions, preparing financial statements, and ensuring compliance with accounting standards and regulations.
- Finance: Encompasses activities such as financial analysis, budgeting, forecasting, risk management, investment analysis, and strategic planning.
Decision-Making
- Accounting: Provides information to support decision-making by providing accurate and reliable financial data.
- Finance: Involves making strategic decisions to allocate resources, manage risks, and maximize the financial performance of the organization.
Time Horizon
- Accounting: Typically deals with the past and focuses on historical data.
- Finance: Has a future-oriented perspective and involves planning and decision-making to achieve long-term financial goals.
Conclusion
So, now we know. To be successful in Accounting, attention to detail, accuracy, and a good understanding of accounting principles and regulations are critical. Whereas, in Finance, analytical skills, strategic thinking, and a strong understanding of economic and market factors are key.
Aren't you glad we cleared that up?
Need Actionable Insights?
Do you have a small Accounting Team but need actionable insights? But don't have the budget for an FP&A or Business Analytics Department? Don't despair. You have options. Engaging an external financial consultant, advisor, or Fractional CFO can provide your business with specialized expertise and insights tailored to your company's needs. To discuss further, call, text, or send a carrier pigeon to The William Stanley CFO Group today.
