Ed is an accounting and finance professional with over 40 years experience. Over the last 15 years or so he has worked as a “gun for hire.” His speciality is to go into a business that is experiencing trouble and turn the place around.
Ed’s current assignment is as an interim CFO of a small to medium manufacturing company. This particular business has been in operation for 50+ years and employs over 100 people. For some reason, the business has been trading at a loss for the last 10 years. Ed, with a fresh set of eyes and some skill, within one year has turned around the business from a loss to a profit.
Now I know what you’re thinking … that’s easy James. Ed simply went in, sacked a lot of people, controlled some other costs and got the business to make money. No – it didn’t happen that way. Rather, Ed asked questions of people on the shop floor, middle management and of course of the owners. Through a combination of asking the right questions and some digging into the financial records, Ed was able to uncover a fundamental flaw. The flaw was both simple and destructive. Believe it or not – no one knew what margin the business made on the products they manufactured. Or put another way … that they didn’t really know what it cost them to produce their products. So how on earth can they make a profit when they didn’t know the cost of what they were making.
In my phone chat with Ed he told me that, armed with the above knowledge, it was a relatively straightforward process to make the necessary adjustments to get the business back to profit. A success story!
However, it was Ed’s next comment that caught my ear the most. He noted, with some frustration and amazement, the fact that that the external auditors and accountants that this business had been using over the last 10 years (trading at a loss every one of those years) weren’t proactive enough to at least ask the question “Why the loss was occurring year after year?” As Ed said to me, “It just reinforces the stereotypes of accounting firms and their people – they look through the review mirror and don’t come up with ideas to tangibly help their clients. They are more focused on ticking forms about the past and making lodgement deadlines. Its very sad – 10 years of missed opportunities.
Now compliance is important, but clients see it as a necessary evil – not as something that helps their business. Lets face facts, the majority of compliance services are simply commodities. The now and the future for the profession lies in advisory work which helps businesses make more money, save more money or save time.
Until next time,