Moving from Accounting Symptoms to Operational Causes
Tax season has a way of revealing more than a company’s tax liability. When the financial information finally comes together, patterns begin to emerge. Accounts require unexpected reconciliation. Margins don’t match expectations. Receivables have grown. Reports disagree. Information that management assumed was readily available turns out to be surprisingly difficult to produce.
To a CPA, these may initially appear to be accounting problems. Sometimes they are.
But sometimes the numbers are simply revealing operational problems that have been developing quietly throughout the year.
The Numbers Usually Have a Story Behind Them
Accounting records document what happened. They don’t always explain why it happened. Consider a company whose receivables have steadily increased.
The accounting system accurately reports the growing balance, but the underlying cause could be somewhere else entirely. Perhaps invoices aren’t being generated promptly when work is completed. Maybe salespeople have negotiated payment terms that accounting doesn’t know about. Perhaps customer information doesn’t flow correctly from the CRM into the accounting system. Or there may simply be no consistent process for following up on overdue accounts.
The receivable balance is the symptom. The process behind it may be the cause. The same principle applies throughout a business.
A declining gross margin could originate with inconsistent estimating or pricing. Unexpected overtime could point to scheduling or project management problems.
Revenue reports that don’t agree could indicate different departments are defining customers, projects, or completed sales differently.
Repeated inventory adjustments could reflect purchasing, receiving, or fulfillment processes rather than accounting errors.
And financial information that consistently arrives late may tell you something about how information moves through the entire organization. The CPA sees the result because eventually nearly everything a business does finds its way into the financial statements.
Growth Can Hide Problems for a Long Time
One reason these issues can be difficult to recognize is that successful companies learn how to work around them. An employee creates a spreadsheet. Someone manually enters information into two systems. Accounting develops an extra reconciliation procedure.
A manager keeps a separate report because the company’s primary system doesn’t provide the information needed.
Individually, none of these workarounds seems particularly alarming. In fact, they often represent smart people finding practical ways to get their jobs done. But workarounds have a tendency to accumulate.
As the company grows, what once took an employee 20 minutes may take several hours. The spreadsheet becomes increasingly complicated. More people become involved. Information gets entered differently depending upon who handles it.
Eventually, the workaround becomes part of the company’s normal process even though nobody consciously designed it that way. That’s when operational inefficiencies begin showing up as accounting symptoms.
Technology Isn’t Always the Problem
When these challenges become painful enough, the natural response is often, “We need a new system.” Sometimes that’s true.
But after more than three decades of helping companies improve their business systems, I’ve learned that replacing software before understanding the underlying problem can simply create a newer, more expensive version of the same problem. Most established businesses already own a surprising amount of capable technology. The better first question is:
What business outcome are we trying to improve?
Then we can look backward. What information is needed to produce that outcome?
Where does the information originate? Who is responsible for it? Which systems touch it?
Where is someone manually intervening because the process doesn’t work as intended?
Those questions frequently uncover gaps that have little to do with the capabilities of the software itself. The systems may simply never have been aligned around the way the company operates today.
This Creates an Opportunity for CPAs
CPAs occupy an unusual position. You see information from across the organization, and because you work with the business year after year, you often recognize patterns management has learned to accept as normal.
That doesn’t mean the CPA needs to solve every operational problem. It does mean the CPA may be in the perfect position to ask the question that starts the conversation:
“Why does this keep happening?”
Why does this account require the same cleanup every year?
Why does this report take three days to produce?
Why can’t sales and accounting agree on revenue?
Why is this schedule maintained manually?
Why do we discover this problem at year-end instead of during the year?
Those aren’t technology questions. They’re business questions.
And asking them can create tremendous value for the client.
Moving from Cleanup to Prevention
There is an important difference between correcting an accounting problem and preventing the business process that created it.
Cleanup solves today’s problem. Prevention helps keep it from appearing again next year.
When the underlying operational cause is identified, the solution may be surprisingly straightforward: clarify a process, establish responsibility for information, eliminate duplicate entry, connect two existing applications, change when information is captured, or create reporting that gives management earlier visibility.
None of those changes requires the CPA to become a technology consultant. They simply require recognizing when an accounting symptom may have an operational cause and bringing the right resources into the conversation. The result can be a genuine win-win.
The client gets better information throughout the year and can make better decisions. Employees spend less time creating workarounds and correcting mistakes.
The CPA receives cleaner information, spends less time on preventable cleanup, and has more opportunity to provide the higher-value advisory services clients increasingly need.
Tax Season Can Be a Diagnostic Tool
Perhaps one of the most valuable things tax season gives us is perspective. When everyone is focused on getting returns completed and deadlines met, recurring problems can understandably feel like annoyances that simply need to be resolved.
But after the deadline passes, those same problems deserve another look. Because the client who needed three extra reconciliations, couldn’t produce a schedule, or surprised everyone with an unexpected number may be showing you something important about the business.
The question isn’t simply:
“How do we fix this before next tax season?”
A better question may be:
“What is happening inside this business that caused the problem in the first place?”
Answer that question, and you may do far more than make next year’s tax season easier. You may help your client build a better business.
