Feb 21, 2022 | Governance, Management
Not all accountants are created equal, and not all do the same job.
All businesses have two types of information required, for which they need three types of accounting functionality.
There is the regulatory and compliance accounting, which can be a simple as the quarterly GST return for a small enterprise, to hugely complex set of statutory accounts for a public company, particularly when it operates in several jurisdictions.
Then there is the management accounting, the numbers used to manage the business on a daily, monthly, and annual basis. These are entirely different tasks, although use common data sources, the ledgers that record activity, and various devices and processes to collect the data for recording.
After making that distinction between compliance and management accounting, assembly of the range of skills necessary to deliver the outcomes is often overlooked.
Data assembly.
You need people to assemble and reconcile the data. These can be less qualified and experienced people, and the processes of collection and initial recording are increasingly being automated. Nevertheless, the processes that track and capture the numbers are vitally important to be proactively created, maintained, and improved. The rigor of the collection and ‘cleaning’ of data will determine the confidence that later processes can have in their numbers.
Accounting compliance.
Failure to follow the rules can result in legally enforceable penalties. Therefore, compliance is of critical importance for external stakeholders, but is largely irrelevant to the management of the business, for which an entirely different suite of skills is needed.
Analysis and presentation.
This is where accounting meets marketing. Either of the two by themselves will tell only a small part of the story. List the numbers and people will ignore them, or be asleep, no matter how important the words. Just use story and metaphor without the foundation of numbers, and you will be dismissed as a typical marketing person, fluffy and unreliable. It is a case of one plus one equals three. If you do not get this combination right, there will be suboptimal outcomes as the wrong decisions will be taken, opportunities missed, and resources misallocated. This third skill requires both the numeracy of the accountant, and future telling ability of the seer. An unusual and often derided individual.
In my case, my friends who are accountants run for the hills when I remind them, that I am in fact, one of them. Meanwhile, many marketers, particularly those under forty, think I am some sort of marketing troglodyte because I do not believe everything in marketing begins and ends with a digital solution.
As Peter Drucker pointed out all those years ago, “the purpose of a business is to create a customer“. The reason you do that is obvious: to generate revenue, from which you make a profit assuming the business is well managed.
Understanding and leveraging the means by which all the marketing jargon is converted into cash, is the core of a successful marketing function in any business. There are thousands of things every business can do without, and still function, the one thing no business on earth can function without is cash.
Therefore, marketing is about cash generation, short, medium, and long term, future tense. Accounting is about counting how much cash there is, where it came from, and where it went, past tense.
One without the other is suboptimal. When you find both in one person, do not let them go.
Feb 16, 2022 | Management, Small business
Do you ever struggle to do something you know how to do, and should be easy, at least that is the way it seems, but never get past the first hurdle.
I do. Disturbingly often.
For some years I have toyed with writing a book, becoming one of those liberated by the web to publish and perhaps generate a return from what I know, the experience I have gathered in a long commercial life.
There are several started lying around, rough drafts, notes, chapter outlines, all the stuff I know I have to do to complete something that may be of value.
I have written 2 or three blog posts every week for many years. I collect lots of ideas, stories, and metaphors from clients, reading, and just rubbing my belly thinking about stuff.
How hard could it be to pull all that together in a book?
Very hard it seems, even when pushed by some of those who know me well.
If I was my own consultant, there would be some tough love and bum-kicking going on.
Like any project, there are a small number of key questions to be asked, and answered which provides a framework for the task, then some logical steps to be taken.
Key questions:
- Who is it for? The core marketing question, who is it that you want to reach and influence to do what? In the absence of a clear answer, the result will be, at best, muddled. Luckily, I know exactly who I should be writing for.
- Why should they care? If you expect people to spend money to buy the thing, then invest the time to read it, there had better be a good reason that they should, and that needs to be convincingly communicated. Again, 25 years of contracting and consulting have given me a pretty good idea of the sort of knowledge and experience I can deliver that will increase the commercial sustainability of the SME manufacturers who are my ‘sweet spot’.
Logical steps:
- Nail the title, and subtitle. The title is in effect the headline for the book ad. It needs to convey in a few words the objective and drama of the book, provide a ‘hook’ for the intended reader. For the writer, it is the equivalent of the strategic purpose, the question to be asked continuously through the whole book ‘is this taking is closer to the objective?”
- Write the back cover. This should be the distilled sales pitch to those you want to reach. Often you will see this as an introduction, which to my mind is wasting the reader’s attention when it is the most curious, right at the beginning. Explain the value to be gained from reading the book, and how will they use this new knowledge? Ideally, this can be written by a third party, someone with real street cred, so it sounds less like self-promotion. I do not really know many people in the category. The one who would have been ideal, my original and great mentor Harvard professor James Hagler, has been sadly gone for some years.
- Write the Chapter list. This is the skeleton of the book, the bones from which everything hangs. A few sentences that specifically articulate what knowledge will be imparted in each chapter acts as an anchor around which the words and stores can be built. This requires creative thought, as most people will read the chapter list before buying the book, so the more interesting, differentiated, and engaging the better.
- Write the draft, of at least 1 or 2 chapters, They will be awful, discouraging, but out if it will come the ‘voice’ that you want to use for your audience, and the structure of the chapters. One person I know wrote their whole book as draft, it worked for him, but the added work after the draft completion to redraft the whole thing when he recognised it was rubbish was almost the end.
- Edit, edit and re-edit. Then get someone else outside to have a shot. Better if the outsider is on side from the beginning and giving the bad news progressively so you can improve as you go, rather than all at once when the draft you have is in your mind, complete. It is hard to kill off those parts into which you have poured your sweat after the words have dried too hard on the page, and in your mind.
- Marketing. Then there is the marketing and operational stuff of necessary to get it out there. Worrying about that too soon is just distracting, plenty of time at the end, and plenty of advice and options around on the best way forward. However, if you are writing the book to make money from the sales, it is entirely different to the situation where you are writing it for credibility, leading to consulting assignments, and perhaps speaking gigs. These two objectives for the book require entirely different marketing strategies.
- Do it, now. Stop thinking about it, and take action. Now.
Note to self: Read the blog, and take action as advised!
Feb 14, 2022 | Change, Leadership
When you do something over and over, you get better at it, the actions become automatic.
Remember the first time you drove to that new job? You looked up the route, probably put the address into the GPS (if you are under 30) and concentrated all the way, ensuring you were in the right lane to turn, and did not arrive at that annoying one way street the wrong way. After a short time, the drive became almost automatic, and you were sufficiently familiar with it to experiment with alternatives at divergent times to avoid bottlenecks and difficult spots.
Rather than contempt, familiarity builds competence.
Processes in a business are the same.
Do them over and over, and they tend to become automatic. This means you can spend the cognitive energy thinking about other things. It is the way we evolved, to preserve cognitive energy to be available when it was really needed, rather than being wasted on the routine.
However, the downside is that once something has become routine, carried out time after time in a relatively automatic manner, it becomes very hard to change.
Feb 9, 2022 | Innovation, Marketing
There is a reallocation of capital from advertising to R&D evolving. Elon Musk may be the typifier. Tesla spends nothing on advertising, relying on Elon and social media, plus all the commentary he generates. Meanwhile, Tesla put $1.5 billion (in 2020) into R&D, representing triple the amount spent/car of the next biggest spenders, Ford, and Toyota.
R&D is the new differentiator, replacing the confected differentiators of the age of ‘mass marketing’
This is a sea-change, the old model was to make mediocre products, and use money to drive mass distribution, and big advertising budgets on TV to drive volumes. The amount of R&D was small, advertising budgets big.
The Korean vehicle maker Hyundai announced in December 2021, that it will close the internal combustion engines R&D group, and redirect funds to Electric development. All carmakers currently reliant on internal combustion will be thinking along the same lines, although to date they seem to have hedged their bets. They must look longingly at the market cap of Tesla, hovering over $1,000 a share, with a PE ratio in the stratosphere. Tesla is worth more than the next ten biggest carmakers in the world combined, astonishing, and unsustainable in my view. Even the second and third US pure EV plays, Rivian (101 billion), and Lucid (72 billion) start-ups who sell almost nothing, are worth more than all but the top 3 carmakers we all know of, Toyota, Volkswagen and General Motors.
This capital reallocation is happening all around us; vehicles are just a convenient metaphor for the trend across economies.
Telcos have been busy spending money on mobile infrastructure over the last 20 years. Coverage has been the competitive differentiator. What happens when technology takes over, as is happening, and you can run a 5G network via an AWS type server farm? Suddenly physical infrastructure becomes redundant, and the location of competitive advantage moves dramatically.
FMCG suppliers used to be major contributors to media profitability via TV advertising. Now, as a result of supermarket chains exercising their power over the point of sale, consumers have a vastly reduced brand choice as the margin pool shifts towards retailers. On the other side of the equation, retailers are themselves facing aggressive competition for the customers attention and orders, a trend evident before 2020, but turbocharged by covid.
I ask myself where can technology drive innovation in FMCG that cannot easily be copied, so the investment by the supplier has a chance to pay dividends?
Plant based packaged meat substitute foods may be one answer. As we learn how to edit genes to produce the enzymes that generate flavour and texture, capital and technology can be applied to intensive farming, replacing low tech and land intensive meat production. The evolution of some produce types in capital intensive glasshouses and aquaculture combinations may be the thin edge of the wedge.
The marketing differentiator in the future will be the leverage technology and intellectual capital offers to the smart marketers, not a line extension or modest evolution of current products backed by mass advertising. Put more simply, ideas, and the intellectual capital that generate them are the new competitive differentiators.
Feb 7, 2022 | Governance, Management
Successful people will tell you to concentrate on the things you can control, be aware of, and prepared for those you cannot. Stressing about those you cannot control adds no value, the best you can do is anticipate the impact they may have, and shape your response in advance.
Managing a business is the primary example of an environment where managers sometimes obsess about things out of their control. Meanwhile, they often ignore or undermanage those they can control, and that deliver sustainable returns.
There are many components to a successful business, the only one that is common to all is cash. It is like oxygen to people, we cannot survive without it.
Therefore, it makes sense to ensure that in every decision you take, part of the consideration is the impact on cash.
Too often I see decisions made, that on the surface make some sense, but when deeper investigation occurs, are counterproductive. The most common is the almost instinctive urge to drop price to meet some competitive pressure, usually accompanied by reassurances that volumes will be increased as a result. 4 times in 5, it results in less cash, and less profitability. Management is way too often surprised at this outcome.
There are 7 things you can control, broken up into two buckets represented by the income statement and balance sheet, that have a direct impact on your cash position.
Price
Volume
Margins
Overheads.
Accounts receivable
Inventory, or in a service business, Work in progress
Accounts payable.
The first 4 are recorded in the income statement or profit and Loss, which records the revenues coming in, and costs going out that are directly influenced by trading activity.
The last three are recorded in the balance sheet, reflecting the cash value of the business and are again directly influenced by management decisions.
Each of these 7 components are linked in a macabre commercial dance, every action on one can and often does, influence most if not all of the others to varying degrees.
It is the responsibility of management to manage these levers to deliver the maximum return to the business, and ensure that decisions made are in line with the strategic priorities.
No business can survive without cash, so it is incumbent on every employee, even if just in their own self-interest, to look after the cash of the business as if it were their own.
