5 May 2016

Those that can, teach

Accountants need the non-finance professionals working in their businesses to understand how they affect the numbers. Yet, says Alex Hewlett, training in this area is often sadly neglected or not fit for purpose, and the finance department needs to get involved

As accountants we measure the financial impact of everyone’s activity. Yet those people doing the “day jobs” that drive the results we measure often have little idea of their financial impact. This includes sales people, production and project managers, logistics, IT, HR – the list goes on. And we give people budget responsibility, but usually with no training in how to manage their budgets effectively.

So how do we help all these people understand how business finance works, and how they can help improve the numbers in our businesses?
Sometimes the training department turns to the finance department to assist in developing financial training – perhaps under the generic banner of “finance for non financial managers”.

They’ve identified the need, but haven’t got the financial expertise to provide the answer, so they need our help. But often we’re too busy, and have little idea of how to put a training course together. One FD I worked with told me he had been tasked in 2012 with developing some financial training, and had failed spectacularly. A training manager from another client first contacted me after his finance department had spent a year not delivering the promised goods.

And even when the finance department does deliver the goods, it’s often the wrong training. That’s because we see the world through the eyes of accountants, but the aim in this kind of training isn’t to turn people into accountants.

For example, one training manager invited me to meet him and the global FD. The FD was talking about the training headliners: “The P&L Account, Balance Sheet and Cashflow Statement. How transactions impact the P&L and Balance Sheet. Revenue recognition.” I asked him what he wanted people to do differently as a result of the training. After some thought he came to the conclusion that he wanted people to be able to improve profit and cashflow within the business.

So finance training isn’t primarily about understanding the accounts (although that may feature). It’s about helping people understand how they impact the financial success of the business, and how they can improve that impact. It isn’t about transferring technical knowledge, it’s about helping people learn new skills they can apply in their day job. It’s about helping people see the world differently.

For example, when I’m working with sales people the concept of cashflow is often relatively new to them. A common view is: “I’m here to win the sale, what happens after that isn’t my responsibility.” This is less true in companies with US owners, but UK sales people are generally weak on cashflow.

And often weak on profit too. If I ask a group of sales people: “So is 10% discount 10% less profit?” the answer is usually a resounding yes. So the people making the sales in many businesses don’t understand profit or cashflow. That’s pretty scary. These are the issues that financial training needs to cover.

The most common exercise I see in traditional finance training is a case study featuring a new business. Equipment and stock are purchased (for cash or credit). Stock is sold, and expenses are incurred. Participants build up a P&L Account and Balance Sheet day by day, and the Balance Sheet balances. All very worthy, but so what?

There are more important questions that need to be addressed. “What impact does changing the selling price have on the results?”, “What’s the cost of too little or too much quality?”, “How do I weigh up the profit and cashflow impact of bulk buying?”, “What stops our customers paying us on time, and how do we remedy that?”

The key message of the training is that it’s what people do that derives the financial results. So if we want better profit and cashflow, what are the things that we need to do differently?

I worked with the MD of a very small business (about 15 employees) recently. His only financial information was the annual accounts produced by his accountant, and his bank statements. One exercise involved looking at his overheads over the last four years. Printing, postage and stationery costs were big and growing. When we discussed cause and effect he realised his printers and copier were set to the colour default: he changed this to black and white, and reduced his costs immediately. All his post went out first class: he changed this to second class, and started emailing invoices.

We looked at the relationship between price, volume and profit. As part of that he showed me his costing process. “So I get to £42.76 a unit, then round it down to £42.” “Why do you round it down?” He thought for a bit, and realised: “It’s an order for 1,000 units: that’s £760. And I’m doing that on every order.”

As he changed what he did, he knew he’d see the impact in his numbers. But he did have a final question: “Why didn’t my accountant tell me this?” Why indeed? We can spend so much time producing information that we can forget that part of our job is to help everyone else improve the numbers.

The biggest barrier to understanding finance for many people is the jargon, and the complexity of the reports. I did a day with the Board of one client. At the end of the day we went through their monthly finance report. All 16 pages. It contained about 5,000 numbers, and its aim was to communicate a financial message to the Board. The FD had been part of the day, and at the end of the exercise he said: “That report is way too long, isn’t it?” His colleagues agreed. “How about if I reduced it to a single page?”

Anecdotes are an effective way of training. A good start for a course would be the financial issues that have hit your business. The customer who didn’t pay. The project that delighted the customer, but where we lost money. The overdue debtors, or the payment terms we agreed to without negotiating. You’ll have plenty of examples. A workshop looking at these examples, understanding why they’re important, and identifying what we can do to prevent or remedy the issues would fit the bill.

A common barrier preventing the finance department from developing finance training is “I don’t have the time” or “I don’t know how to put a training course together.” Both very valid issues.

The good news is that it needn’t take much time. If the training is going to be successful we need to be clear what the key issues are. Sales? Improving gross profit? Budget management? Cashflow? You already know the answer to that question in your business. Then we need to know why these areas are weak. Late customer payment may be down to poor negotiation, weak contracts, sloppy invoicing, incomplete delivery, poor compliance with the project spec, weak credit control, or a dozen other issues. But once we know the cause of the problem, we know the target audience for the training, and the issues we need to cover.

We don’t need to know how to put a training course together either. The training department are experts in that. We need to work with them to identify the target audience; the desired outcome of the training; the content that will achieve that outcome; the stories that can become illustrative case studies; and the technical issues that need covering.

With that information the training department should be able to put the training course together. Although in my experience it pays dividends if we work with them rather than simply delegating the task.

And when it comes to running the training course it’s worthwhile being part of the presentation team. By all means let the training team take the lead in delivering the workshop – it’s their area of specialism after all. But having someone from the finance team there as well not only helps build relationships between finance and the rest of the business – it also helps explain jargon; it means we can tease out some of the wider implications; and we can use our knowledge of the business to bring things to life with more stories. I keep coming back to stories, but I find again and again that it’s the stories that help people understand finance.

In summary:

So what can you do if you are asked to help develop some financial training? Here are some ideas:

• Make it a priority. If the people in your business don’t understand profit and cashflow, let alone understand how they can improve them, what chance do you have of improving the financial results?

• Forget double entry. Just as you don’t need to know how the internal combustion engine works to drive your car, people (outside finance) don’t need to know how double entry works.

• Make very clear the link between what people do, and their impact on the numbers. A key aim of the training is that participants understand that it isn’t the finance team that produces the results, it’s their own actions.

• Use stories and dynamic case studies. Let the case studies focus on: “If we did things differently, what would the numbers look like?”

• Emphasise that a very small improvement in costs or sales has a disproportionate improvement on profit. Show the impact that 1% increase in the selling price (or a 1% discount!) has on the bottom line of your business. Do the same for a 1% reduction in costs. People often think that the impact they can have is so small (often true) that it isn’t worth trying. When they see the impact of a small change on profit they’re often surprised.

• Highlight cashflow. It’s the part that people understand least.

• Don’t be afraid to ask for help. Finance is your core skill, not training development. Work with the training specialists. It’s the combination of your finance knowledge and their training skills that becomes really powerful.

• Keep it simple and make it enjoyable. People come on a finance course expecting not to understand it; to be bored; and for it to be irrelevant to their day job. So we don’t have to do much to massively exceed expectations.

• Be involved on the workshop itself. Even if you can only manage to do a question and answer session at the end of the day, the time will be well spent.

Alex Hewlett ACA runs Attainment Training, specialising in financial training for people outside the finance team


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