Business Acumen: Do Accountants really get it?
Let’s cut to the chase: a business exists to make or maximise profits -business acumen is the savvy, shrewdness, wit; you name it, with which a person can perceive and actualise a profit opportunity. Accountants summarise it on the income statement as the difference between revenues and expenses. Ask them for the breakdown, they’ll point to income statement notes or spreadsheets they call: results-by-segment-by-country-by-customer-by-department-by-sales rep.
You would think the strong technical or financial acumen they possess to generate such detailed reports about profits should translate into strong business acumen, right? Wait a minute!
ACCOUNTANTS SEEM TO UNDERSTAND BUSINESS ACUMEN QUITE DIFFERENTLY
Good business acumen does not mean you can measure and report on assets, liabilities, equity, revenues, expenses and/or profits; nor can you say you do have it just because you work in a business entity.
Rather, good business acumen means you can actually identify profitable opportunities, threats and then, entrepreneurially execute decisions that almost consistently bring about the most profitable outcomes for the business over time!
Modern day CFOs agree they look for this trait in the accountants they seek to hire but lament the dearth of this in many young finance professionals (See separate interviews with Deon Fredericks –CFO of Telkom SA (pg. 14) and Fathima Gany –Finance Director of Parsons Brinckerhoff Africa (pg. 16).
The first problem for accountants is that revenue can only be maximised if the price is right (not maximised), and if the company maximises sale volumes. The price however is one of the 4Ps (for tangible products) or 7Ps (for services), so it forms part of the overall marketing mix which quickly becomes the prime duty of Marketing –so the Accountant can only input to that process.
In fact, the marketing mix itself which entails so much balancing between the corporate and business level strategy as well as different competing interests, is what largely determines the sales volumes; yet sales volumes is also outside the remit of the accountant! Where the accountant is involved, is typically at the CFO’s level and that expertise may never really trickle down to the accountant who remains technically very astute, yet attracting the ire of higher executives who demand that accountants should adopt a business partnering stance!
The second problem is on the cost minimisation side, taking quality into consideration. Although armed with traditional costing techniques (e.g process, job, batch, standard, absorption and marginal costing) and modern management accounting techniques (e.g activity based costing, life cycle and target costing), most business expenses are actually outside the control of the finance function (e.g. Human Resources will control Wages and Salary costs whilst Procurement will control material purchase costs; as illustrated in our previous article, pg. 38).
HOW CAN I -AS AN ACCOUNTANTMEASURE MY BUSINESS ACUMEN?
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