If you read LinkedIn, business literature or specialized Slack channels or mailing lists, the topics are all similar: KPIs, Cash Management, Series A, B, C, M&A, pitch decks, VC’s and PE companies, debt or equity, and supply chain issues. Do you know what almost all these topics have in common?
You can’t create a ratio without data. How do you know your runway unless you know your inputs and outputs of cash, which comes from the accounting data.
You created a pitch deck. That deck included forecasts and if you’re doing a Series equity injection, due diligence will center around your accounting data. Same is true If you are looking for debt vehicles.
PE/VC just love (Adjusted) EBTIDA targets. The source of these targets; accounting data.
So why are CEOs so dismissive of the accounting/finance function and personnel? Why isn’t the C-Suite involved in the creation of the Chart of Accounts, Departments, or other tracking elements?
I once went to a job interview for a start-up and was informed that accounting wasn’t all that important, and all the data would come from their e-commerce system(s). Who told me this, the CIO. Sitting next to him was the CEO shaking her head in agreement.
There was no thought process that marketing would need certain data or how the business would be stratified. How would the business set itself up to be sold, and how would they be able to present the accounting data to support the claims? Also, cash management can be affected by the classification of sales, in that e-commerce sales are normally done by credit cards, and wholesale on net terms.
Then there is the actual accounting system. Can it a) track all the desired elements, b) produce proper reports, c) post all transactions to the appropriate G/L accounts and d) handle the possible craziness of your industry? The answer many times is you’ll have an accounting system that may not be able to do all four.
I had one such client, a start-up whose business plan went from e-commerce only to include wholesale and Amazon sales. The C-Suite was uninterested in the Chart of Accounts and for the most part tracking. The accounting system implemented worked exceptionally well (not perfectly) for the original business model but started to fail badly when wholesale department stores were added to the mix.
This came to light when investors were sought. The firm assisting in the process requested reports that were simply difficult or next to impossible to provide, simply because of a) accounting system deficiencies that were exacerbated by the ever-changing business model and b) the sale stratagem didn’t match the chart of accounts.
Whether you are a new business or an established one, the business model must have the support of the accounting system. All stakeholders need to be involved in the development of the accounting system, its chart of accounts and tracking features with the following eye on:
- Cash Management
- Sale Silos or Channels
- System Interoperability
- Business plans, evolving model
If your business model is pivoting and your accounting system isn’t, whether for a technical reason or because of non-action, you are doing a disservice to not only operational performance, but the ability to sell the business.
Forewarned is forearmed, as the saying goes. Prior knowledge of possible dangers or problems gives one a tactical advantage. Start today to modify your accounting system to mimic the direction and needs of your business.
Should the business be fast-tracking, strongly consider a new accounting/ERP system. Make sure you have clearly identified your business model. Highlight pivots and the gaps that need to be overcome.
In any event, your accounting system is more than the sum of just credits and debits, it is the source for measuring the success or failure of your entire business plan.
There is an old adage, Prior Planning Prevents Poor Performance. Think about it.