What number do you want?
Accountancy has a reputation for detail and accuracy that it probably doesn’t deserve. Outside of City traders, there’s not many professions in which the phrase ‘I’ve lost £0.5m’ can crop up, legally, and not be met with wailing and gnashing of teeth. To a management accountant, it’s the day job.
There are two different career paths to Finance Director. The financial accountant is the one that concerns themselves with cash, regulatory compliance and balance sheets. The management accountant wouldn’t know what to do with a balance sheet if they found one in their soup. They are concerned with profitability, budgets and analysis. (There is a third route to finance director, via investment banking and consultancy for those companies concerned about credibility with the City, but that’s a special case). It is the management accounting species that tends to lose £0.5m here and there, as they wrestle with budgets and making sense of the company’s actual results.
A good joke at our own expense, when asked the financial consequences of a business proposal, is to reply ‘What number do you want?’ It’s funny because there’s some truth to the implication that accountants will fit the figures to suit the answer managers want.
To understand why that’s not as unprofessional and compliant as it appears, you have to appreciate that financial analysis is not normally the decisive factor in how management make decisions. If a course of action is decided based on numerical analysis alone, it hardly qualifies as a decision. The qualifying condition of decision-making is that there should be uncertainty, about which management must make a judgement. Finance is useful in this regard and always a factor in the decision, but not always the biggest.
So the question ‘What number do you want?’ is really asking ‘What are we trying to achieve?’ It’s the dialogue that follows that question that’s important, especially after the numbers have been crunched and feasibility becomes clearer. This is where the accountant earns their keep. It often falls to the accountant to break the bad news that a wished-for outcome is not likely, or an unwelcome course of action has become necessary. It’s the manner by which the accountant influences this conversation that establishes their professionalism and competence. It’s called being a ‘change-agent’ or, more accurately, ‘making the unpopular decisions’. Once the feasibility of a proposal has been established, then there is a certain amount of manipulation to present the case as the manager wants, and that’s where the element of truth in the old joke lies.
What about financial accounting, normally the only kind of financial reporting seen by those outside the company? Is this so plastic? Less so. There is however a big number that everyone wants to know but financial accountants can’t usually tell you: how much the company is worth. Financial accounts are at their best when, as clearly as possible, they tell you what has happened. That’s not much use when valuing a company, when the bulk of the value lies in what will happen next.