Four Fateful Wounds We Find in Finance and Accounting
Whoever said that “time heals all wounds” must not have been in business! We find that most “wounds” in business, if not treated promptly, just get worse over time.
At Fahrenheit, we spend a lot of our time working with middle market organizations on accounting and finance matters, and we see a lot of “wounds” in those areas. Sometimes they appear with our existing clients and other times they come to light when a company approaches us with a problem. As we look back over our significant experience in this area, we have identified four common management reactions that allow wounds to get worse:
1) Denying that the problem will get worse
Psychologists tell us that denial is a natural reaction to bad news, so it is not surprising that managers often look the other way when a problem surfaces. We also frequently see a willingness to dismiss the problem as an isolated occurrence rather than viewing it as the potential tip of the iceberg. “Our receivables trial balance does not match the general ledger? Must be a timing problem…it will get better next month.” The next thing you know, six months have passed and the difference has grown. Now you are facing a bigger systemic problem and perhaps a misstatement of your balance sheet and income statement for half of the year.
2) Trying to solve the problem with the same resources that created the problem
Resources could be people, IT systems, processes and procedures, spreadsheets, etc. We frequently see managers believe that a bit of coaching or allowing a few extra hours of overtime is all that is needed to fix the problem. Sometimes that does work, but to the extent that there is a general lack of understanding, or the wrong tool is being used for a task, we generally see the same problems resurface again and again. Maybe the person doing the personal property tax returns for multiple jurisdictions doesn’t have the basic knowledge to set up processes and procedures that will help avoid a recurrence of problems in the future.
3) Waiting too long to ask for help
When denial is no longer an option or the existing resources could not solve the problem, we get the call. Unfortunately, by then, the problem has grown and perhaps staff with valuable historical knowledge has become frustrated and left. In any event, the scope and cost of the project has expanded, and what could have been a relatively quick fix has turned into a long, drawn out project. We have sent a consultant in for a one month project and it ended up being over a year of cleanup, restatement of financials, refiling of taxes, on and on. Don’t get me wrong, we love long, messy projects…we can make a lot of money on them! But we also see management getting frustrated at the amount of cash being spent to fix the problems, often when there is a time crunch before a year end or tax filing date. This can be avoided by asking for help earlier!
4) Considering cost savings as the ultimate goal
Listen, everyone wants to minimize costs, especially in this crazy, mixed up, uncertain COVID-19 world. And there is no glory in overpaying for any product or service. Sometimes, however, we see cost minimization as the goal, when getting the problem solved should be the goal. We have seen a company with disastrous financial records tolerate a revolving door of staff for several years, getting further and further behind. When their CPA’s recommended that they engage us to clean up a multi-year mess, keeping cost down was their primary objective. We did what we could in the time and budget allowed, but they did not want to keep spending money to get their records accurate and up to date. Ultimately, due the inadequacy of the their financial records, their bank walked away from providing some much needed financing for expansion. So, they won the cost battle, but lost the war.
About the Author
Doug Jones provides fractional CFO and senior financial management services to small and midsize organizations. In addition to improving his clients’ accounting and finance operations, Doug frequently serves as the link between company owners and outside advisors including attorneys, CPAs, investment bankers, appraisers, and personal financial advisors. He is skilled in identifying and integrating the full range of financial and non-financial business issues in contract negotiations and resolution of business decisions. He is a member of Fahrenheit’s Leadership Team.