Is Finance Really Too Backward-Looking?

Is Finance Really Too Backward-Looking?

On one of the group coaching calls I run as part of my CFO Readiness Builder program, someone asked me how Finance people can learn to speak more about things that people outside Finance, in the wider business, are interested in. Often it seems like they’re not really interested in what we have to say.

And sometimes we can fall into the trap of setting up what you could call a false dichotomy. The suggestion on the coaching call was that in Finance we talk about the past, whereas the rest of the business cares about the future. So, the question was put in terms of how we can be more future-focused and therefore more aligned with the business.

But I don’t think that’s the problem.

The problem is that we’re not understanding the relationship between the past and the future.

The Primary Focus is The Future

The first thing we need to understand is that a business is an organisation. And an organisation is a group of people with a common vision and purpose. And a vision is always future-orientated.

So, you could almost say that a business can be defined in terms of the future. It’s all about the future. Its focus is on its future goals that form part of its vision.

And – crucial point – Finance is part of that organisation with the same shared vision. So, Finance absolutely should be thinking about the future for the business, the vision and mission and goals.

Even for me, as a micro-scale entrepreneur with Supercharged Finance, my focus is always on planning and taking action toward the future goals of the business.

The Past is Not Irrelevant

When we produce our reports as Finance people, we necessarily report past results. How could it be any different? There is no factual data about the future! The data we have is all “historic” data - it all relates to things that have happened (past tense). (Future projections are not data and they are not facts, they are uncertain predictions of what the facts will be in the future.)

The important thing to ask is why do we report past results?

What’s the point?

People tend to talk about this backward-looking reporting as being valueless, value-destroying. But it’s absolutely not. It has a purpose. Otherwise, we should just stop doing it completely.

It’s a good little mental exercise to do. Just picture yourself going to the CEO and investors and telling them that you’re going to stop doing financial reporting, because it focuses on the past and so it’s destroying value, and we don’t want to do that. (That’s just a mental exercise, by the way! Please don’t go and actually do that. I don’t want you getting fired!)

You would soon find out that these supposedly future-focused executives really really value reporting of actual past performance.

The Purpose of Reporting the Past

There are two purposes of reporting past performance.

Firstly, when I think about my goals for Supercharged Finance, I’m always thinking of things in terms of the gap between my vision for the future of the business and where it is now.

My vision is to see it making a certain amount of money, but now it’s making less than that. That’s the gap I have in mind all the time.

And my question is constantly, what are the actions required to bridge that gap – between current performance and future aspirations?

We wouldn’t ever know how well we’re doing as a business, how much progress we’re making towards our shared organisational goals, if we didn’t report on the past.

The Lessons That We Needed

One thing I’ve started to understand more clearly since setting up Supercharged Finance is that business strategy is experimental. It’s risky. There’s no infallible guide to success. So, when the business follows a strategy, it doesn’t know for sure whether it will be successful or not.

One of my favourite quotes, from someone who coaches entrepreneurs, is,

“If you set out for a goal, you either get the result you wanted or the lesson you needed.”

The thing is, you can’t learn much if you’re not measuring results – from the past.

When I’m considering what actions are needed to bridge the gap between current and future performance, my next questions are:

-       What was I trying to do?

-       What did I expect/hope would happen?

-       What actually happened?

This is really breaking the long-term vision and goals down into short term goals.

The question that comes next after that is, why?

Measure Each Moving Part

And to understand why performance is the way it is, we have to break down performance into its moving parts...

... yes, you got it, value drivers! (I sometimes refer to these more generically as performance drivers.)

What specifically needed to go right in order to produce the results we wanted?

And those elements are going to be different, depending on your business, sector, strategy, products, services, marketing processes, and so on.

For me, and Supercharged Finance, it involves things like website visitors to certain pages, number of registrations to the events I put on, video views, webinar attendance, number of downloads of free content, number of people on the mailing list, number of LinkedIn followers (and newsletter subscribers!). Not all those are equally important, and some of them have to be combined with financial information in ratios. But it gives you a flavour.

The point is that the breakdown into KPIs that relate to the critical success factors (that’s what the key value drivers are) is what tells me exactly what lessons I need to learn. Is it a web page that isn’t designed properly? Or is it the way messages have been presented? Is it the topics that I’ve focused on in social media posts?

That’s the discussion I need to be having (with myself), and that every business leader needs to be involved in when looking at the performance of their business. And it’s subjective and complicated sometimes!

Do We Really Need a P&L?

And here we come full circle, almost.

Hopefully what becomes clear is that for those who care about business performance – whether the business is progressing well towards its goals – the standard P&L on its own isn’t really what matters.

What matters in learning the lessons is knowing what exactly needs to change and what needs to be kept the same.

And you can’t do that with purely financial measures.

So, the P&L will inform us about the overall performance gap that needs to be bridged. KPIs will teach us the lessons for improving performance.

Finance Needs to Pull All This Together

So, to answer the question about how we in Finance can start to relate to the rest of the business better, we need to understand these things explicitly.

1.     The purpose of the reporting we do in Finance (excluding statutory and regulatory compliance reporting) relates to the future goals of the business.

2.     Therefore, just reeling off a P&L (and a Balance Sheet if you’re very good!) isn’t enough.

3.     What we need is the story of current performance, the lessons that are suggested by that, and the actions that could be taken to get better.

4.     So, we need to get better at understanding the place of non-financial data and measurement.

The final point I want to make is that this is a key question for Finance professionals. There is no getting around it. Because CFOs are expected to be the protectors and champions of business performance. “Finance Drives Business Performance” is something I really believe.

But if we’re to do that, then everyone in Finance needs to start thinking like part of the business, and not just accountants producing their standard financial statement outputs.

Think – if these business goals were your goals (which they are), what would you want to know?

The pressure we have on us is that, because of our performance driving remit, we really need to be able to coach the business in this way of looking at things. And many of us are far, far away from being able to do that. So, let’s rise to the challenge and learn how to bridge past performance and future business goals.

Does this make sense to you?

Want to learn more about Business Performance Management?

If you want to explore the performance-driving role of Finance more, I’ve written a free short guide entitled How Finance Can Drive Business Performance.

CLICK HERE to download that guide.

I’ve also got a free Short Guide to Value Drivers. CLICK HERE to get that one.

CFO Readiness Builder

If you are keen to progress quickly in your Finance career, you need to focus on the skills and capabilities that make the difference – the business acumen and behavioural skills that make you a business leader.

Our CFO Readiness Builder program is designed to help you to do that. CLICK HERE to find out more.

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About the Author – Andy Burrows

I’m Andy Burrows, and I’m Founder and CEO of Supercharged Finance, a provider of online learning and coaching, aimed at helping Finance professionals get better at helping the businesses they work for.

I qualified as a chartered accountant in the UK, and have worked for more than 25 years as a senior Finance professional in a variety of businesses of different sizes and sectors.

I’m now a popular writer in Finance and Accounting. In 2019 Anders Liu-Lindberg described me as one of the "Top voices on LinkedIn for Finance, accounting and FP&A". And in 2024 I was given official LinkedIn Top Voice status (see the little blue badge on my profile!)

If you’d like to hear even more from me, go to my profile and click the follow button!

Progress requires focus. By staying committed to your goals and avoiding distractions, you achieve success. Stay disciplined and motivated. Progress helps you stay focused and achieve your goals. Visit: www.gabrieltopman.com To learn more.

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Brad Eisenhuth

CEO at The Outperformer I Author | Business Performance Change & Projects | Real Talk with Outperformers Podcast

7mo

A great reminder for finance professionals to recognise their role in driving the future of a business Andy Burrows.

Patty Guenther

Armanin& Financial director

7mo

I agree with you. Superior

Laura Toop

Empowering Leaders to Flourish in Complexity | Creator of #ProjectMe | TEDx Speaker | ONE Million Transformations by 2030

7mo

Very interesting Andy Burrows - I think the point about 'telling the story' is so important, that is the key to driving people to engage with numbers, what do they mean, how can we take action based on this, and measure the impact of that action.

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