Analysis, forecasts and modeling: What’s the point?
In today’s business world, risk, uncertainty and volatility are just par for the course – everyday realities of simply being in business. Nothing is certain, they say, except death and taxes. Yet there is a fine art to driving profitable growth in a business, and adapting to existing and emerging risk takes a great deal of experience, information and agility. While planning and process development may occur at many levels within the organization, it is the FP&A (financial planning and analysis) capability which helps top performing businesses be top performers.
Financial planning and analysis are activities central to enterprise performance management (EPM) and must necessarily extend beyond finance. Integrating various functional domains in the business (financial, operational and strategic), FP&A should bring data together from the various facets of the business and use the information to help structure and guide the organization toward meeting short-term and long-term goals. Among the most critical of the duties of FP&A is calculating the financial impact, the monetary effects, of potential business decisions. Everything in business means money, so there is always an impact to a decision. With the right information supporting the decision, it is far more likely to have a positive impact and a level of sustainability.
While many CFOs may recognize the importance of performance measurement, planning and forecasting, a great many also believe the process isn’t very effective. The cause is frequently the divide between the various domains in the business and the information systems supporting them. Operational data are distilled into summary financial information and fed to finance systems, losing much of the underlying intelligence that might be gained from analysis of the details. Strategic development and planning may overlook certain volatile elements in the market, or may base successful outcomes on an expectation that conditions within the business will not change. Finding ways to integrate the data from the respective domains into a comprehensive model is essential to developing a better and more robust forecasting and scenario-playing capability. With the right information, analytics may be applied to all facets of management decision-making, anticipating and shaping business outcomes far more effectively than could be done without the insight.
Small business owners may believe that things like “predictive modeling” and “enterprise performance management” aren’t things they need to worry about, but the small business could use this information just as beneficially as a larger enterprise – perhaps even more as the insight could be the key to small business survival and growth.
Using analytics, the owner is able to adjust and re-align strategy in real-time to keep on the right path and goals clearly in sight. Analytics can also help a business better understand what really drives revenue, working capital and profits. Analytics can even help managers align compensation and strategy with business objectives, preventing compensation issues from outpacing business benefit.
There is a cost to growing a business, and some strategies might be more sustainable than others. Time will tell, but it is great if the business owner has some business intelligence that might indicate what’s going to happen before it actually does.
Accounting Professional Value is Insight and Advice, Not Just a Hosted Server
Back in the late 90’s, when the application service provider model was first established, a number of providers recognized how beneficial it would be for public accountants to use hosted applications to work more closely with their accounting and bookkeeping clients. Seeking markets which would rapidly adopt a hosted application model, these providers focused on hosting small business accounting solutions such as Intuit QuickBooks desktop products, and then sought participation by the largest addressable communities of users working with those products – QuickBooks ProAdvisors, bookkeepers and accountants. The idea was that the community of QuickBooks professionals would benefit by bringing their clients onto the hosting platform, and service providers could sell to one professional and gain a bunch of small business users. It made sense, too, as it allowed the professional to have a single service and login that allowed them to access all their client QuickBooks company files. The client could log in to the system, too, delivering remote access and managed service benefits to the client, as well. But there was a catch, and it didn’t fully reveal itself until recently as cloud-based applications and true SaaS applications began to gain market adoption.
The problem actually started to reveal itself as more businesses elected to adopt hosting services. There’s a saying amongst the QuickBooks hosting providers that “nobody uses just QuickBooks”. Saying “nobody” uses just QuickBooks is a bit of a stretch, but the reality is that numerous businesses use other applications and software solutions in addition to their QuickBooks product. Sometimes these products integrate with QuickBooks and sometimes they don’t, but it is not often that a business utilizes just the one software solution. At minimum, there are likely email or productivity tools in use, too. The point is that the QuickBooks hosting providers – those hosts focusing on providing service to QuickBooks accountants and small business clients – realized that the number and variety of applications desired by their customers would grow very quickly, as would the variety of needed implementation models. The unfortunate solution of the time was to just put it all on the same environment.
The original selling message to the QuickBooks consultant and accountant markets was that they should get all their clients on to the hosting service, and then the accountant could benefit from an “economy of scale”, making the cost of the overall delivery lower. Further, by grouping the firm and the clients into a single hosting environment, it would make application and data sharing easier. Both of these messages are true, but putting the firm and its clients into a single environment – with the firm as the “sponsor” and front line promoter of the service – began to have impacts which were not clearly foreseen.
Accounting professionals and consultants changed the nature of their relationship with the client, going from trusted advisors to technology and solution vendors.
Client business technology needs were placed as secondary to “enabling” the working relationship between the accountant and the small business client.
Attempts to fully satisfy client technology requirements overburdened and impacted the environment, reducing overall service quality and satisfaction and diminishing the value of the scale economy (as well as the clients’ perception of their accounting professional).
Firms structured their processes to support a single technology and operating model, and found difficulties in adopting new strategies or solutions.
In concept, having accounting professionals and their clients all working seamlessly together in the same systems sounds great. For some firms, a cloud server packed with all the firm and client applications and data enables an entirely new business and service model, which is very cool and it actually works (for some firms and their clients). But the problem – a problem which may not be fully revealed in the short term – is that the various businesses involved, from the accounting practice to each and every client, has different business needs and operates as a unique organization. While there may be fundamental similarities, “the devil is in the details” as they say, and a single platform or hosting solution is unlikely to really work well for all. Even more potentially damaging, the perception of the trusted advisor who is now viewed as a vendor of IT services or software erodes the value of the client engagement and the potential for the firm to deliver greater benefit through their core offerings. A business owner is more likely to change vendors of IT service than they are their trusted accounting or finance professional. And they’re also more likely to change IT service providers if the provider cannot deliver exactly the application or service desired. When the accounting professional is perceived to be the IT service provider, the lines are blurred and the client ends up attaching their loyalty to a software product or business solution instead of the accountant advisor OR the IT provider.
With SaaS and native web-based applications being broadly adopted by small businesses, the opportunity for firms to engage with clients in different ways and with different solutions started to break the one-size-fits-all hosting approach. Professionals found that empowering their clients by supporting properly fitted solutions which work for the client business delivered the opportunity to become more operationally and strategically involved with the client business. Deeper operational and strategic involvement with the client became the means to drive increased value in the engagement and services offered and delivered. The client business was able to benefit from the involvement of their trusted advisor, regardless of what platforms or systems might be in place.
Accountants and bookkeepers are recognizing that the previous model of aligning the practice with a particular software product or delivery system may not be the best approach to building and retaining the customer base. With new business accounting and bookkeeping solutions emerging regularly – and gaining broad market adoption – and as more and more varied cloud based services and solutions are applied to various business problems – professionals will further recognize that their value is not tied to a cloud server, a single small business accounting solution, or to any particular technology. The value of the accounting professional is not in the software they support or the server it runs on. The value of the accounting professional is in the insight gathered and advice provided – services offered which help support better business management, growth and profitability.
Accounting Professionals serving a small business client base are struggling to find ways to demonstrate the value of the services they provide, yet many firms remain focused exclusively on their own processes and improving profitability therein rather than looking “outside the box” to see how they might involve the client in the discovery. The obvious element which these firms are not addressing is the client user, and how a direct participation by the client becomes the foundation for internal process improvement. After all, a lot of what accounting professionals are battling against is perceived value. If the client were to be a more direct participant, the value of the work and the tools which support getting it done could provide a more tangible or visible aspect and increase the overall value perception of the client.
It is easy to say “get the client more involved”, but actually doing it can be the real challenge. Professionals are recognizing this reality as they attempt to engage client users in online portals for document exchange and by providing application functionality which is supportive of the accountants’ processes. While some professional firms are experiencing success with this approach, many other firms are not. There are likely a variety of reasons why some firms have more success than others in getting clients to work with their online tools, but I believe there are two key elements which impact success: accountant-centric focus, and provider lock-in. Whether these elements work to the firms’ advantage or not depends solely upon the specifics of the service model and client market being served.
Accountant-centric focus
Most accounting professionals recognize that paperless approaches to working with client information and documents makes a lot more sense than working with the actual paper. Particularly with the innovations in image capture, OCR and zero-entry solutions, it is logical to try to get as much of the required information transformed into useful digital data as possible. Data entry time is reduced, accuracy is improved, and the resultant information is better and more useful and may be processed more efficiently… for the accounting professional. For the client, on the other hand, it’s just another way to get information to the accountant (who is always wanting more information). The value of the deliverable – the reconciled bank account, financial report, tax return or whatever – isn’t increased. The solution often offered to the client is a solution intended to solve not the client problems, but the accountant’s. For the client, it is difficult to see this as a “solution” to any evident problem they face.
Provider lock-in
Business software customers are often commenting about how the solutions they use don’t allow easy transition to alternative products, or add-ons are only available from developer-prescribed sources. Vendor lock-in is a consideration and may be a barrier to doing business, because business owners want to know that they have the ability to change as business requirements change… whether it means changing software and systems, or whether it means changing professional service providers. As more professional service providers attempt to engage their clients in technology-based approaches to doing business, clients are recognizing that these approaches may come with “strings attached”, limiting their future choices. While it is important for the professional services firm to protect its work product, it is also important to consider the client’s position. Part of every business relationship is trust, and that trust should not be one-sided. Just as the professional trusts that the client will work with them in a legitimate manner, so does the client trust that their professional will not hold their information hostage if they elect to make a change or engage with other providers in the future. Additionally, does the system provided by the accounting firm allow the client to collaborate with their own team members or other service providers, or does it address only the interactions between the accounting pro and the client? This also represents a barrier to participation, as any given client business likely interacts with a variety of providers – many of whom are also asking that owner to implement solutions which improve their ability to do a form of e-business together.
As accounting service providers look to technology to facilitate closer and more efficient working arrangements with clients, they would do well to also consider how that technology is positioned to benefit the client as well as the professional practice. Delivering a solution which provides clients with the capability to control information access, which allows collaboration with their various service providers, and which facilitates a lean process approach for all involved could be the right answer to the problem. Perhaps this becomes the most important factor – client enablement – and focusing on solutions which address the clients’ information management and processing requirements as well as those of the firm.
Creating and keeping a competitive edge is critical to building a successful business. Developing a plan, monitoring the plan to make sure the business remains on target, and setting goals for growth and profitability are foundations of business success. But great strategy and detailed planning cannot ensure success because the economy and business environments are unpredictable; no amount of planning is a guarantee that bad things won’t happen and the business won’t experience challenges. On the other hand, regularly monitoring small business performance data can reveal trends and indications that things are not going as expected, and provide a basis for making the decisions necessary to get the business back on track and regain the competitive edge.
Business owners must be prepared to make adjustments as conditions change, acting on decisions made based on business performance data. Whilebusiness analytics are more important than ever, with businesses facing volatility in financial markets and increasingly globalized competition, finding a way to approach the matter is often the biggest barrier. The growing difficulty – the increasingly expanding problem facing business owners and their advisors – can be distilled down to three particularly noticeable trends.
The volume of data flowing into organizations is already high and is increasing.
The data is complex
The data lacks similarity (data is disparate)
The volume of information flowing in to businesses is already high, and is increasing steadily. With all the data collection applications and tools available, and as the business seeks to gain more information and intelligence from more sources, the volume of information gathered by businesses has increased at astounding rates. Technology has adapted to this need, allowing businesses to gather than store vast amounts of data. To be of value, however, the data must be analyzed tofind the answers to questions posed. What technology is only now beginning to address is the complex and disparate nature of the collected data. Coming from varying sources and in equally varying formats, data must be “normalized” and related for it to make much sense.
More Users
More business decision makers in more job roles and functions are getting involved
More people approaching the problem with their own “brand” of analysis
In a very small business, decisions are generally made by the owner. This is most often due to the fact that the owner is the person who not only knows what’s going on in the business, but is generally the one doing a lot of the work. As businesses grow and bring in personnel to manage various functions, these managers become decision-makers. Decisions are made in businesses at all levels, and as management layers are compressed, those “closer to the action” are being handed more responsibility for the decisions impacting their areas. Without a comprehensive and company-wide framework for data analysis and reporting, these individuals and workgroups find ways to capture and analyze the data they feel is pertinent to their requirement and within their own realm.
Less Time
Timeframe for making decisions is shrinking, and is shrinking at an “alarming” rate
The “velocity” (rapidity of motion) of business is increasing
It may be that, in some businesses and markets, certain decisions don’t have to be made with any great speed. Businesses or markets of this type are tough to find these days because the Internet, information technology and connected systems have all but eliminated the effects of time and distance. Just about everything in business today moves at a rapid pace, and that means that business decisions are often demanded on-the-spot, providing little time for detailed consideration and working through the problem. Without the tools and data providing meaningful real-time visibility into business performance, decision-makers may be able to act fast but not wisely, and are most frequently guided by their “gut feel” as to what the right move is.
Driving Small Business Analytics
Business decision makers are now recognizing the need to know more about the business and how it is operating and competing in order to effectively address the choices and decisions faced each day. The cause for this recognition may be due to variable elements, but the conclusion reached was the same: good business decisions require business analytics to support them.
Not surprising was the report finding – that the majority of small business owners felt pressured to adopt a business analytics solution primarily due to the fact that “critical business decisions rely too much on “gut feel”. Surprise! Other drivers listed were lack of visibility into operational metrics, the growing number of people in the business who want analytical capability, the business’s inability to identify and act upon business opportunities, and having less time to make decisions.
Steps to Get There
As with any business project, there are “degrees of success”, and the ultimate success of a business initiative requires that all parties be on board with it. Businesses who recognize a need to improve their analytical capability, but who do not then empower their systems, processes and people, will not achieve the same result as those who do.
Focusing on the business data, it is important to address both the volume and disparity by creating formal data management practices and policies, and implementing systems and processes which assist with the intelligent capture and storage of business information. Simply retaining the data is not useful; it must be presented and applied in a meaningful manner for it to become useful as decision-supporting information. The value of the information increases dramatically when it becomes truly useful to the business. Additionally, by empowering a broader framework for data collection and analysis, businesses extend the “intelligence” to others in the organization, supporting individual and workgroup efforts to make better decisions for their respective areas of responsibility. Of course, if the information is not provided in a timely manner, its value is reduced if not eliminated (hindsight may be 20/20, but that doesn’t help you see where you going to step next). Any approach to building business intelligence should leverage connectivity and integration to provide a timely delivery of complete information how and when it is needed.
What’s the Proven Benefit?
source: article
The obvious benefit of business analysis is that business owners are provided with data to help them understand more about the business operational and financial performance. The real and proven benefit is that the information provides a basis for gaining insight into trends and conditions which impact performance, and which support making the necessary decisions which facilitate improvement in various business areas.
The highest level of proven benefit, according to the Aberdeen Group report, was achieved by those businesses who embraced the requirement to know more about the organization and operation, and who implemented a focused effort at building business intelligence.
Fast Facts: Best-in-Class SMBs Achieved 24% year over year increase in new customer accounts sold compared to 12% for the industry average, and 11% for the laggards.
These organizations which achieved the greatest improvement operated from real data rather than being guided by gut and emotion, enabled the entire organization to participate in the development of organizational and business intelligence, positioned themselves to identify and act on new business and market opportunities, and ensured that those who must make decisions have the information and insightful data to support making the right ones.
Accounting Professionals Should Do This: Be Proactive and Regularly Communicate with Clients
I’m not sure where I heard it, I think it was a sky diver on TV, who said about the sport “you’re dead until you do something about it”. At the same time that I realized that I never wanted to sky dive, I also realized that this fairly desperate philosophy at some level applied to a lot of business situations. Weirdly enough, one of them was how this relates to public accountants and bookkeepers working with small business clients.
One of the things I’ve heard a lot throughout the years is that bookkeeping and doing other work for small business clients is tough, because they never bring you the information you need when you need it. With a philosophy of “help me help you”, accounting professionals are trying to find ways to make it easier for the client to deliver the work to them. The missing element, however, is a closer working relationship with the client, coupled with PROACTIVE and REGULAR (please note the big letters) reminders that getting the work to the professional is the only way to get it processed in time .
How many firms really communicate with clients only during tax season? Is the client organizer your main method of reminding them that you’ve got a relationship? It’s not even funny how many business owners couldn’t name the accountant who did their tax return last year, and who don’t seem to care to know. This is definitely not the way to build and retain client relationships, yet it is the approach many professionals take. And then they wonder why the client base isn’t growing, and why they are having a hard time “communicating their value” and they want to know how to get more of that profitable “higher level” work.
You’re dead until you do something about it.
Put into the context of the reactive accountant, it starts to make sense. Accounting professionals must be proactive – be doing something to build customer loyalty and retention, be actively and regularly communicating with clients so it’s not a mad rush during tax season, and be implementing tools and solutions to help them offer more meaningful services to their clients. This is how to make the firm grow and thrive. So, go do something about it.
If you own and operate a business, you probably want to make it successful. Granted, success comes in many flavors, and there are also “degrees” of success, where maybe you do okay but not as well as you’d like (or not as well as your local competitor). Running a successful business, and crafting a business with sustainability and long-term value, takes information as well as know-how. Remember that information = power and you want to be as powerful as possible when it comes to running your business.
While today’s information technologies, mobile devices, and “everything as a service” have the capability to deliver way too much information for the average business owner to make sense of, there are a few areas of the business where investing in a little insight and reporting can make a big difference in the level of understanding you have about the business.
Rather than making decisions based on guesses or gut, business owners should use actual historic data relating to these are key areas (and key performance indicators) to help predict sales and order volumes, estimate cash flows, and forecast profitability.
Getting Customers
The “customer lifecycle” does not start when someone buys from you, it starts when they become a potential customer (often referred to as a target). Even before someone buys, your business may expend resources to expose your brand or product to them on websites, in advertisements, and through other marketing channels. These marketing efforts will (hopefully) result in the generation of qualified leads for the business to sell to. Unless the business understands the costs involved and the efficiency of the marketing and lead generation efforts, it cannot understand the actual cost of getting a new customer.
The next step in getting customers is turning a qualified lead into an actual paying customer. The business will want to keep track of conversion of leads into customers, along with sales data including total sales, number of items sold, and how items were priced. Powered by sales performance data, business owners can learn whether or not their lead qualification efforts are working, if their products are competitive, and if the pricing is in alignment with the industry.
Producing Work
When businesses operate, they essentially produce whatever work product their business model is designed to produce – whether it is a professional service, product, logistical support or whatever. Every business produces some type of work product. This is the operational aspect of the business, and business owners should want to know as much as possible about how well operations are running and how effective the operation is. This isn’t just the cost of production, (the yield expected for a given investment in materials or equipment), it is also about the quality of the product (customer satisfaction) and the quality and value of the service behind it (customer retention).
Keeping Money
Money (more specifically, cash and the availability of it) is the metric that most small business owners tend to focus on. It makes sense, too, given that most small businesses survive based on what they have in their bank accounts. Then again, looking at the accounts receivable and payable won’t tell the entire story, either. Business owners need to know how quickly their customers generally pay, and they need to know how much capacity or inventory they have before needing to buy or develop more.
The message underlying this entire discussion is that fact that you can’t analyze what you can’t quantify (no information = no power), so it is essential that systems be in place to capture information from the business and its activities. Further, recognize that it takes some skill and experience – perhaps from your trusted accounting professional – to put the information together so that it makes sense and is useful.
Make Sense?
J Measure, Manage and Succeed. It’s all about knowing how to speak the language of finance
In today’s business world, risk, uncertainty and volatility are just par for the course – everyday realities of simply being in business. Nothing is certain, they say, except death and taxes. Yet there is a fine art to driving profitable growth in a business, and adapting to existing and emerging risk takes a great deal of experience, information and agility. While planning and process development may occur at many levels within the organization, it is the FP&A (financial planning and analysis) capability which helps top performing businesses be top performers.
Cooper Mann Consulting 