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The Top Twenty Mistakes Corporate Accountants Make (Mistakes 20 - 11)
By David Parmenter - Waymark Solutions
Apr 10, 2012

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In this series of articles, Performance Management thought leader David Parmenter analyses the top 20 mistakes corporate accountants make, and how to avoid them. In doing so, he demonstrates how you can revolutionise a finance team’s performance.

We will be releasing the next 15 mistakes later in the week through the Newsletter.

Internationally renowned Speaker and Author David Parmenter is delivering a full day workshop on Wednesday 18th of April in the Gibson Hotel. For further information please visit - The Corporate Accountants Workshop

Make sure you avail of this opportunity to take part in one of David's revolutionary workshop.

As a failed corporate accountant (I had to organise my own leaving party) I feel particularly well qualified to analyse the top 20 blunders since Paciolo sent us on our way. Having studied better practices carried out by winning finance teams from across the world I have set out the common mistakes corporate accountants typically make, along with the solutions.

Mistake 20: over 80 account codes for the P/L

Show me a company with less than 60 account codes for their P/L and I will show you a management accountant who has seen the light. However, I have seen many charts with more than 300 expense account codes in the G/L, and up to 30 accounts for repairs and maintenance.

Resetting the chart of accounts may be a thankless task, but it is crucial in determining how we report and set targets. If prepared poorly, CFOs’ eyes glaze over, the objective to reduce the account codes fails and, slowly but surely, the chart of accounts takes on a life of its own.

Do not breakdown costs into a separate account unless they represent at least 1% or greater of total expenses. This will reduce your costs to somewhere between 40 to 60 account codes.

Do not break revenue in separate codes unless revenues represent over 3% or greater of total revenue. This will reduce your revenue to somewhere between 15 to 20 account codes.

Have larger buckets and when asked a simple question ask them what decision is going to be made based on the information requested, or tell them the answer is ‘42’*.

A skilled management accountant can always investigate six weeks of expenditure and then annualise the number.

Mistake 19: only forecasting to year end

Typically corporate accountants have reforecast the year end numbers every month. This is flawed on a number of counts.

Firstly, why should one bad or good month translate into a change of year end position? It is normal to gain and lose major customers, and see products rise and fall in popularity.

Such forecasts are also usually top-top with little input and no buy in from the budget holders. Furthermore, two months before year end management appear to ignore the oncoming year.

Finally, management and the board know whatever number you have told them is wrong.

Forecast quarterly six quarters ahead using a planning tool (not Excel) as it is a commonly accepted better practice. The trick to rolling forecasting is to a fast light touch, so managers can do it quickly. Quarters two to one are not as important; the key is to get quarter one correct.

Mistake 18: breaking the annual plan into 12

We like things to balance and our work to be neat and tidy. Thus it appeared logical to break the annual plan down into twelve monthly breaks before the year had started.

We could have been more flexible. Instead we created a reporting yardstick that undermined our value to the organization.


If you still need to perform an annual planning process you can remove the need for twelve monthly targets arising from this process. Report against more recent targets derived from quarterly rolling forecasting process, rather than a monthly budget potentially set 17 months before the period under reviewed.

See the first of my two part series on quarterly rolling planning for more information.

Mistake 17: giving budget holders an annual entitlement

Preparing an annual plan is problematic enough. Asking budget holders what they want and giving them an ‘annual entitlement’ to funding is even worse.

Instead, inform a budget holder you are aware of their annual request but will only fund what they need to run the next quarter. Advantages include:
  • ‘spend it or lose it’ can no longer work, as budget holders find it nearly impossible to hide their reserves in the next three month period
  • budget holders are encouraged to seek funding for initiatives not in the annual plan
  • budget holders are weaned off asking for an annual entitlement they may not need.

Mistake 16: budgeting at account code level

Having budgets at account code level has encouraged budget holders to allocate expenditure to an account that that has room for it, thus undermining the purpose of the G/L (accounting for costs and revenue in the right areas).

If you have good trend analysis captured in the reporting tool, you should not need a target or budget at account code level. Apply Pareto’s 80/20 rule and establish a category heading which includes a number of G/L codes.

Limit the number of categories in a budget holder’s budget to no more than 12. Have a budget category line if the account code is over 10% of the total (eg show revenue line if account code is over 10% of the total revenue).

If the account code is under 10%, consolidate it with other account codes until it forms a category representing over 10% of the total. Map the account code expenditure history to these categories – a planning tool can easily cope with this issue without the need for a revisit of the chart of accounts.

*According to Douglas Adams’ ‘The Hitchhiker’s Guide to the Galaxy’, 42 is the answer to ‘life, the universe and everything.’

Mistake 15: Taking months to do an annual plan

The annual planning process does not add value, but undermines efficient allocation of resources and encourages dysfunctional budget holder behaviour. It negates the value of monthly variance reporting and consumes huge amounts of time from the board, senior management team, budget holders, their assistants and the finance team.

The extermination of the annual plan was first written about by Jeremy Hope of ‘beyond budgeting’ fame. To test the hypothesis that organisations would thrive without an annual plan he searched for organisations that have never had the process. These organisations exist and are thriving.

To learn more read Jeremy’s work ‘Reinventing the CFO: how financial managers can transform their roles and add greater value.’ To understand the changes required have a look at, where I have explained ‘quarterly rolling planning’ in a free web seminar. Also see my Insight articles on the topic.

Mistake 14: Producing numbing monthly financial reports

Many management reports are not a management tool, but a memorandum of information. Many monthly reports - prepared by the finance team - include endless detail and are never read. I once saw a pack with 140 full pages.

Reduce the finance pack to fewer than ten pages. Eliminate the essay and simply have a small comment box by each statement.

Have one page to summarise the subsidiaries results and only include the large ones and any that are in trouble. Small subsidiaries that are performing well do not need to be included.

Mistake 13: Reporting on the wrong performance measures

Many companies are working with the wrong measures, incorrectly termed key performance indicators (KPIs). My research suggests very few organisations monitor their true KPIs as few have explored what a KPI actually is.

There are four types of performance measures:
  • key result indicators (KRIs) – give an overview on past performance and are ideal for the board. They communicate how management have performed in a critical success factor or balanced scorecard perspective
  • performance indicators (PIs) – tell staff and management what to do
  • result indicators (RIs) – tell staff what they have done
  • key performance indicators (KPIs) – tell staff and management how to increase performance dramatically.
Effective KPIs are non financial measures which are measured frequently and acted upon by the CEO and senior management team. They should be understood by staff, owned by particular individuals or teams and have a significant and positive impact.

To understand performance measures better see a series of free web seminars and accompanying articles at Also read Kaplan & Norton’s book ‘Translating strategy into action the balanced scorecard’ and my KPI book ‘Key performance indicators – developing implementing and using winning KPIs’.

Mistake 12: Not producing daily/weekly decision based reports

I believe you have succeeded as a corporate accountant when your management team know whether the month is going well or badly during it. This enables the SMT to do something about it before the month ends.

Senior finance staff should insist that assistant accountant level staff be engaged with staff across the business at the workface. This is where you often find out the true story rather than the story for public consumption.

Corporate accountants should provide the following daily and weekly reporting:
  • yesterday’s sales reported by 9am the following day
  • transactions with key customers reported on a weekly basis
  • weekly reporting on ‘late projects’ and ‘late reports’
  • some weekly information on key direct costs reports on KPIs.

Mistake 11: Selling change by logic

To sell successfully you need emotional drivers, not logic. Many initiatives driven from the finance team fail at this hurdle because we attempt to change the culture through selling by logic: writing reports and issuing commands via email. It does not work.

Radically alter the way you pitch a sale to the SMT and the board. Make sure you have a good proposal with a focus on the emotional drivers that matter to them.

Focus on selling to the thought leader of the SMT and board before presenting the proposal. This may involve arranging informal meetings, sending copies of appropriate articles and telling better practice stories to awaken interest.

All presentations should be road tested in front of the PR expert. PR strategy should address how to sell the change to staff, budget holders, the SMT and the board.

For further information on David's upcoming Irish Workshop please visit - The Corporate Accountants Spring Workshop

Make sure you avail of this opportunity to take part in one of David's revolutionary workshop.

This article is an extract from a 110 page white paper that can be purchased from his website

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