IS IT THAT TIME AGAIN?
Andrew Priestley
Leadership Coach | Industrial Psychology | Publisher | Bestselling Author | Speaker
(Five minute read - grab a coffee.)
From 2008 to 2016 - every month - I ran a 90-minute workshop called How Money Flows Through Your Business. Essentially, I explained the magic of management accounts … in plain English.
Now, I am NOT an accountant... so it was entry level Management Accounts 101 - but enough to UNDERSTAND your accountant... from the perspective of a business owner... and as a business coach helping established SMEs grow revenues, profits, cashflow and achieve growth.
But I have a confession to make.
My first business made a lot of money. But I did not understand the numbers. Even the basic ones. My yardstick was cash-at-bank. So, I was dumbfounded when I knew I'd had a great month of sales... and there was no cash.
Where was the money? Where's my money gone?
My accountant tried to explain it to me and suggested we generate a set of management accounts... but honestly I had no idea what I was looking at... and the exercise of looking at my numbers went straight to the too-hard basket.
That business was successful, but honestly, I had nothing to show for it. And it was a monster that consumed every waking hour almost seven days a week. In the end, I was literally too exhausted, and I shut it down. I didn't even have the energy to try and sell it. I knew that anyone who bought it would have wanted me too stay on during the buy out.
I was done.
But it bugged me that I didn't understand the money.
My next business was family friendly... and a success... and it grew. And I had a brilliant accountant... that I STILL did not understand. One day, he was explaining why my tax bill was higher than normal and he said... You don't understand the numbers, do you?
This time I was embarrassed. Over the next two years I picked his brains... but I also read books... did small business bookkeeping courses... attended seminars ... and STILL I was in a fog.
Then one day it literally snapped into total focus and made complete sense.
It was early one Sunday morning... and I was at a hotel in San Clemente, California, USA... sitting by the pool... with a coffee... reading USA Today. I usually read the Lifestyle section but for some reason I started to read the Business section.
The front page article was a feature on General Motors. The CEO had just announced they were going to run out of operating cashflow by Christmas that year. And he had asked the US Government for a bail out of about $51Bn.
I do not know why... but suddenly I UNDERSTOOD the article. I knew why GM was in trouble ... and I could explain it from a management accounts perspective.
The next article was about a small family-run cinema chain that were facing bankruptcy.
There was an article on Fender who moved their amplifier factory to Mexico and were prospering.
And an article about Apple who reported $35Bn in cash reserves.
And each story made total sense from a management accounts perspective.
***
Fast forward a few weeks later and I am back home having a coffee with a client who was answering a 'hows business' question... and he was stumped as to why he had done $42,000 in sales this month... and there was no cash.
So I drew a diagram... and explained it to him... and he said...
‘Ahhhhhh…. NOW I get it!’ Why has my accountant NEVER explained this to me before?’
The truth is his accountant - like mine - had probably tried, and failed.
For starters, accountants speak accountant-ese and honestly, when most accountants speak we draw a blank. I used to nod as if I understood because I felt too stupid to admit I was an idiot.
But for SMEs - even if you get perfect numbers from your accountant - you might still have NO IDEA what the numbers mean. And let’s face it, most people lose the will to live when the topic turns to management accounts, anyway.
My client asked if I could speak at his networking breakfast. I suggested he ask a qualified accountant but he said, 'We've had accountants ... and they have never said anything as clear as this.'
I want to emphasise that I am not an original thinker.
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Remember, it was a miss-mash of talking to accountants... reading books... doing courses... then putting it into my own words. But I agreed to speak... and I explained the balance sheet, income statement and cashflow statement with a simple diagram ... and the feedback was overwhelming.
Next thing, I'm being asked to give the talk to another club... then at a seminar... it just went from there. The ultimate was speaking at a banking conference to business lenders! And being the keynote at a conference of 143 accountants! That still stuns me.
The talk was called How To Understand Management Accounts... but it actually explains how money moves through business...
... any business such as GM... Apple... or a small family-run, movie house! So I called it How Money Moves Through a Business... then How Money Flows Through Your Business.
As a snapshot:
Management accounts are NOT financial reporting required by your tax department. They are generated to make strategic and tactical financial decisions. At a glance, Management accounts comprise a Balance Sheet, an Income Statement and a Cashflow Statement.
They are often viewed in isolation but they are NOT separate - they interact. Miss this connected relationship and its no surprise why they don't make sense (or as much sense.)
***
Anyway... from 2008-2016, I gave that 60-90 minute workshop every month.
But a LOT has changed since 2016.
I believe, your accountant is a rock star. They have your numbers, real time cloud based data and incredible smart SaaS analysis tools and a mandate from the tax department.
And yet, even though they have this amazing fire-power at their finger tips, sadly, most accountants are literally still recovering from Bates vs State of Arizona 1977... and still can't explain management accounts simply... and in plain English. Well the ones I've met anyway.
The result is smart business people are still asking me incredulous questions like:
I find very smart business people don't understand that the goal of business is to make money... (if you are in doubt, ring up your tax department and ask them). Most business owners express the purpose of the business – which is to deliver on their Vision and Mission and Values.
If the goal is to make money... understand the numbers.
Do you need to become an accountant? No. But you do need to understand your accountant.
How Money Flows was created to help business owners make informed decisions... then it became a wise move if the goal is to recession-proof a business... or respond to a crisis like GFC, a pandemic... or inflation... a war... or all of those combined!
The opposite to understanding your numbers is gut instinct, wishful thinking and hope.
Without an entry level understating my colleague, Virtual CFO, Andy Cristin says you risk:
And the questions I am getting right now are STILL management account questions. That's why I feel it’s time I think to dust off the How Money Flows workshop again.
Understand, I AM NOT AN ACCOUNTANT… and I do not want to replace the advice of your accountant... but I have built and run successful businesses… and coached thousands business owners to more revenues, profits, cash flow and growth... and I'm saying: you need to understand what your accountant is advising you to do.
The secret is explaining the flow of money … in plain English. I believe understanding management accounts are your secret business growth weapon of choice right now.
It’s criminal that SMEs pay me to translate for their accountant! But it is immensely satisfying when the lights come on.
Ahhhh.... NOW I get it!
Andrew Priestley mentors business leaders worldwide. He is on LinkedIn and has a business leadership group called LeadershipGigs. Please join.
Note: if you can't wait for the online Zoom workshops please access the How Money Flows materials below. It’s a nice price that hasn’t changed since 2008.