Why your accountant won't be able to do your startup's financial projections
Before working with me, Caroline, a founder of an underwear brand for post-breast surgery recovery, asked her accountant to help with her financial projections, pricing and margins. However, all he could do was establish her costs. She already had the data herself, so it didn’t help.
So why can't Caroline’s accountant help her, despite working with numbers?
What an accountant does best
I like to see your accountant as a priest. Your accountant knows the accounting rules and the HMRC rules. He is like a priest who knows the Bible and relies on it for any questions that you have.
He prepares your payslips, the accounts of your business and answers all the questions you have about HMRC and all of that. So he is best placed to give you advice on that. Just like a priest will give you advice based on the Bible.
To work on financial forecasts, and finance-driven decisions you need a finance advisor or a fractional Finance officer if you don't have a finance background.
A finance advisor transforms a set of figures into a story.
Your accountant will prepare the data set and the finance advisor will transform it into a story. It’s like a blacksmith who buys iron and steel before moulding them into a sword that people can buy for their use. So, a finance advisor is like a blacksmith: they take your numbers and mould them so that you can sell your business to investors.
An real example of what a financial advisor can bring to you
Let me give you an example. When I worked with my client Caroline, we turned a bunch of numbers into a story. That in turn helped explaining the gap between what she wants to achieve and today’s reality.
For instance, her deck was showing that her business was about to penetrate the UK market by 1% in the first year, and so on a few years later.
But going deeper into her numbers, it didn’t show anywhere how she was planning to do that.
Together, we broke down the way her business works and how she’s gonna attract these people.
So now when she says that she’s targeting £100k in revenue in the first year, she is able to explain how she's going to do that:
She’ll need to acquire 1,000 visitors per month on her website, with [x]% of these visitors making an average purchase of [4] bras. Each bra sells at £[50], which will then bring her £100k.
She can also articulate how much it will cost her to do that:
To acquire these customers, she estimates that it’ll cost £[10] each, driven by a mix of social media ads to start with and relayed by word of mouth and hospital recommendations.
Why does your accountant cannot do that?
If you ask your son’s football team coach to coach a rugby team, he won’t be able to do so, even though there are similarities.
Indeed, in both sports, there is a team, a ball and they’re played on grass. Except that the rules are different. In one, as soon as you fall, the referee whistles in your favour, while in the other, falling after being charged by your opponent is just part of the game and the referee doesn’t even look at you, even though you’re chewing the grass like a cow does.
Both an accountant and a finance advisor deal with numbers. But they don’t play the same sport.
So while the accountant is working on historical numbers, their focus is less on storytelling and understanding how the business works. The accountant prepares you to comply with HMRC. A finance advisor looks at the numbers through the same lens as an investor would.
Conclusion
Asking the right questions to the wrong people leads to the same conclusion as asking the wrong questions to the right people. Nothing.
As Nobel Prize-winning French biochemist Jacques Monod said:
“A totally blind process can by definition lead to anything; it can even lead to vision itself.”
So for all your questions relating to payslips, accounts, expenses and HMRC, ask your accountant.
For your questions on pricing, profits, financial forecasts, valuation and financial storytelling, ask your finance advisor.