Philip, are you sure my accounting function has ONLY two objectives?

Recently, I talked about the only two objectives of your accounting function. The only two objectives/goals your accounting function really has… It's real purpose in your company.

And I made the case that a CFO, and the accounting department as a whole, must excel in these two areas to truly make a difference in the success of your company.

I also discussed how the two objectives held the secret to shedding the old label of the accounting function as just a cost center that fails to add real value in your company. As a CFO or entrepreneur, you have an incredible opportunity to turn your accounting function into a strategic asset… an asset that helps your company win in business.

BUT, I can hear your inner critic…

It's grabbed the bullhorn in your head and is asking: "Really, Philip. Only two objectives? So the hundreds of things we do in our accounting department are useless? They are a waste of time and money? Is that what you are saying?"

Fair questions.

Let's take a quick look at some of the work that goes on in your accounting department and see how it fits into the two objectives: Improve results and attract capital.

The work like:

• Recording transactions
• Payroll
• Cash receipts and cash management
• Accounts payable
• Accounting for the purchase and sale of inventory
• Recording and tracking fixed assets and the related book and tax depreciation schedules
• Ensuring only approved vendor invoices are paid
• Maintaining the general ledger
• Safeguarding the cash and other assets of the company
• Preparing financial statements
• Preparing and filing local, state, and federal tax returns
• Managing and recording accruals
• Accounting for prepaid expenses
• Billing customers
• And tons of other compliance, control and transaction related processes and responsibilities

Improving Results

Our objective in helping to improve financial results is to provide fast and accurate financial information that helps management make better decisions. The information needs to be insightful and have a tight link between the actions being taken in the company and the results of those actions. That way everyone has the information to make good business decisions.

If your accounting department is slow in paying vendors, ignores accounts receivable, seldom reconciles the cash accounts, has no controls related to expenditures, and no safeguards around company assets, your accounting function would quickly become the enemy. They would be killing your ability to improve results.

In fact, they would be driving results down all by themselves. And they could never provide accurate financials for management. And whatever they did would be slow and way too late to make a difference. Nobody would trust the numbers anyway.

Providing insightful, accurate and useful financial information for management can only be accomplished by an accounting function that operates as a well-oiled machine.

Attracting Capital

Our objective in attracting capital is two-fold.

First, as the company gets better and better at improving its results every month, every quarter and every year, it becomes easier to attract capital. Lenders and investors love to find financially solid companies to lend and invest with.

Second, we focus on developing credibility and trust in the eyes of lenders and investors by providing fast and accurate financial information that is both insightful and helps them better understand what drives the company financially. We provide financial information that is a bit more "big picture" oriented than the management information because lenders and investors need a little different view of the financial information than the management team needs.

If the financial statements are inaccurate, if there are no safeguards around cash and other assets in the business, if tax returns are late and the company is incurring large penalties, then no lender or investor is going to touch the company.

Once someone invests in the company, they want to know that their money is being managed by smart people who know exactly what's going on at all times. A sloppy accounting function kills credibility and destroys your ability to attract capital.

Your accounting function has to be on top of its game every day in order to earn the trust and confidence of lenders and investors.

This isn't about winning awards in accounting…

It's about making sure you and your management team has the information to make smart business decisions… quickly.

It's about instilling confidence, credibility, and trust in the minds of lenders and investors who can provide the capital you need to grow.

This is where your CFO can make such a big difference in your company – by thinking strategically about the true purpose of your accounting function.

A CEO and CFO that work together like this are the ones that know how to win in business.

Comments

[EBeancounter]

Nicely done, Philip. Making smart and informed decisions in a timely manner is key to running a successful business.

[Philip Campbell]

Thanks for the positive feedback. It is already hard enough to improve profitability and cash flow without making the job harder with sloppy financial management.:-)