It goes without saying that people who run businesses should be financially savvy. That is that they know how to make money, read an income statement and deal with investment decisions. According to the accountancy body, ICAEW, 51% of the CEOs in the FTSE 100 have a finance background. It is little wonder in this challenging environment. According to the FRC, that is echoed in the FTSE 350 with 49% of boards possessing a background in accountancy or finance. So, today we discuss how commercial nous beats the business blues and charts a path to success.
Commercial nous
Commercial nous refers to a combination of commercial-mindedness and industry knowledge leading to better financial outcomes. More generally, ‘nous’ refers to common sense or intelligence. In short, we mean people who understand a business and an industry to make sound financial decisions. This doesn’t always make accountants or finance professionals the ideal candidate. Quite the opposite. Many financial accountants, auditors or tax experts are highly-competent at rules-based application, following accounting and auditing standards or tax legislation. Many finance professionals come from banking, credit or investment institutions and may possess less technical knowledge than the former.
Finance and commercial nous
As with many professions, the accountancy profession has strived and struggled to retain relevance in the last two decades. With substantial outsourcing and offshoring, many ‘common’ accounting activities are performed externally. This may cover everything from inputting invoices to processing payments. Human resources has also seen huge change with the transition of basic HR services to third-parties, covering onboarding to vetting, payroll processing to updating records. Marketing has also seen a huge shift towards outsourcing, both to demand centres/centres of excellence or agencies.
These are a few examples but they all have one thing in common – standardised work that is performed in a lower-cost geography. Furthermore, advances in robotic process automation, the interoperability of software platforms and advanced computing has increased productivity. In conclusion, many head office functions are now smaller and a lower percentage of revenue. Some people suggest that the ultimate ambition is to have a finance cost of around 0.5% of revenue. CFO.com suggests that top performance is around 0.56%. This means that accountants in larger businesses can ill-afford to be bookkeepers and have to migrate to advisors.
Commercial advisors
Does your business have a finance department that drives business results? Many FTSE 100 businesses would definitely agree. However, as we go down through the FTSE 350 into AIM and beyond, this proportion gets ever smaller. Many have finance teams out of necessity to process invoices, chase payments and process transactions. After all, it is quite a hassle to outsource three roles out of a team of six. The likelihood is that in these small finance functions, the team are bookkeepers or auditors in experience. They also need a firm grasp of financial accounting to cope with the complexity of financial reporting. However, as more and more businesses look to reduce finance costs and automation increases, the remaining roles need to develop to justify their cost. Previous initiatives have seen accountants positioned as commercial advisors, pushing themselves up the value chain with their commercial nous (if they have it). More recently, business partnering became the norm with accountants supporting commercial initiatives and adding value. Now, we see accountants as being the key to delivering ESG and sustainability reporting. Only time will tell which accountants can develop the skills necessary to support good decisions. What is clear is that the challenges for businesses are increasing and some require a new approach.
What best-in-class looks like
A common reaction to the above image of a finance professional is one of perplexity. The majority still see accountants, first and foremost, as keeping score. They are a necessary cost of doing business to comply with Companies Act requirements and tax legislation. However, failing to leverage the potential of the finance function is a mistake. As profits are squeezed, investment decisions become critical and net zero looms, who will support you to make the right decisions? There are a number of finance professionals who prefer adding value, improving processes and contributing towards sustainability. These people tend to have a slightly different set of skills and personality traits to the ‘typical’ accountant. Whilst not always the first choice to head up an organisation, with practice stalwarts tending to dominate, they are present when charting a path to success. A best-in-class finance function has a mixture of value-add and transactional roles, with the former seen as a luxury for smaller firms. Ultimately, when operational experts feel like they are on their own in trying to beat the business blues, many would surely appreciate this commercial nous.
Business and commercial nous
Here at Think Beyond, we have been through many transitions from ‘transactional’ or repetitive tasks to value-add. With commercial nous being a necessity in the careers and work of our founders, we help businesses with growth and performance. As a consultancy borne of a philosophy of doing things differently, we know a thing or two about transformation. In conclusion, if you would benefit from some commercial nous to beat the business blues or chart a path to future success, give us a call.
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