Thought Piece

It is understandable that when businesses come together, different accounting practices are going to be run in parallel. Often, there are more pressing matters than integrating the different Enterprise Resource Planning (ERP) systems. At the same time, the management of the acquired company can put-up stiff resistance to change. They feel comfortable producing numbers in the same way that they have always done. The result: information of variable quality, produced at a pace which is too slow to be useful.

The wrong information at the wrong time is not the sole preserve of companies involved in M&A. Much of my career has been spent trying to help finance departments talk sensibly to the rest of the business. Finance professionals who are trying to explain numbers to non-finance people must be able to see the numbers from the user's point of view and understand why the accounting information that they produce may not be as meaningful to everyone else as it is to themselves.

One of the biggest problems non-finance people have is the concept of accruals. Everyone except accountants thinks it means that you just make up the numbers. And that perception is sometimes not that far from the truth. While many finance professionals are excellent at the debits and credits, they are less able to explain what the numbers mean. It is a question of recognising individual strengths and weaknesses.

Happily, signs are emerging that companies are finding ways to build better bridges between the finance department and the rest of the organisation. One of the trends we've been seeing — and indeed working with clients to make happen — is the setting-up of Business Performance Teams: financial professionals who know how to work with the rest of the business to drive the commercial agenda. A Business Performance Team helps make sense of the financial data to produce analysis and trends and looks at what drives revenues, profits and cash flows.

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of.

That brings us to the role of the banks, so often the largest creditor and certainly the one with the most intimate knowledge of how a company is faring. We all love a stereotype and the heartless, faceless bank pulling the plug on sound businesses over a minor blip sits deep in the business consciousness. But not all banks fit this caricature. "We want to work with management of a business facing difficulties to help identify the issues and provide solutions to get them back on track," says a senior manager with a leading retail bank. "We can make the most impact when the problems are identified early. We are keen for management to be open with us."

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of. Most solutions to business difficulties involve access to more funds and/or different products (hedging, leasing, factoring) and that all adds up to continued and profitable involvement for the bank.

A Repositioning Turnaround may mean divestment of a troublesome subsidiary. It may mean embarking on (yet another) cost-cutting exercise, including turning away revenue opportunities if they are not of a sufficiently high margin. It most certainly involves a first step of getting an impartial and pragmatic overview of what the problem actually is, from Turnaround Professionals who also know the kind of language with which to talk to banks. The moment you take this kind of decisive action, you're likely to discover that there's no crisis, no drama, only urgent action that must start now.

Peter Charles 2010