Oh come on, give it a chance. I’m an accountant. It’s called Success by Numbers – it can’t always be fun, fun, fun.
One of my issues with my world and indeed, of “professions” generally is how we use jargon to confuse and obfuscate.
Jargon is fine, so long as it’s used within the group for whom it was developed. What bugs me is when jargon is used with clients in what is really an attempt to preserve the “mystery” surrounding what we do.
Maintaining the mystery serves several functions, but ultimately it’s about power, and who wields it. Knowledge is power, and those with the knowledge can charge the fees to access it.
So using jargon with clients is basically saying “I know something you don’t know, but you would benefit from knowing. It’s extremely technical and complicated, and can only be communicated using extremely technical and complicated language.
“You should be grateful that I am the holder of this knowledge. You should be willing to pay handsomely for the privilege of my imparting it to you.
“Could I explain myself in layman’s terms? Yes, but that would devalue my knowledge and that would lead to a lower fee. That is unacceptable.”
What a load of rubbish. We either serve a useful purpose or we don’t. If we have the confidence that what we are offering solves whatever problems it’s supposed to, then making it sound like Stephen Hawking’s reading list doesn’t increase the value.
Anyway, there is a (somewhat tangential) purpose to this rant.
I was helping a client set up her budget for the new year this week. If you’ve read any of my past offerings, you’ll know how vital I think this sort of process is.
I was bandying about “budget” and “forecast” without realising that she didn’t have a clue what I was on about, or what the difference was or why it mattered.
She’s not alone, it’s not the first time this has happened, so…….
A budget sets out, in numbers, what the business expects to achieve in a given future period of time.
By achieve, I mean in terms of profit, financial position and cash flows.
The budget will be updated once or twice a year, and we would look at actual numbers versus budgeted numbers to see where it’s going right or wrong.
By looking at these differences, we can identify whether we need to take any sort of action to bring the actual numbers back to where we think they should be.
A forecast sets out what we think will actually be achieved.
The forecast is updated regularly (continuously, if you are using sensible software) to ensure it reflects the actual situation.
We don’t compare the forecast to actual results, because the forecast is based on continuously updated actuals in any case.
With a forecast, we are saying “Given where we are today, and what we think will happen, this is what we think the numbers will look like.”
If you’ve read any of my stuff before, you’ll know that my favourite analogy is that a budget is like the old paper roadmap; it gives us an overview of the route we’d like to follow.
The forecast is the satnav; it responds in real time to road conditions ahead to change the route.
Both budgets and forecasts are massively useful in controlling a business, but if I had to choose between them, I’d choose a forecast.
A budget may end up as an unrealistic wish list; a forecast is based on reality. And reality is always better.
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.