The Pioneer Accountants Podcast
By Neil Cornford
The Pioneer Accountants Podcast
Episode 4: Big Questions for Accounting - with Neil Cornford of NPC Financial
This time it was my turn (Neil Cornford, a self-styled ‘hybrid accountant’) here at NPC Financial. I was on the spot with some big questions for accounting, have a listen and let me know your thoughts!
Kirsten Gibbs: [00:00:00]
Welcome to the pioneer accountants podcast, where pioneering accountants answer big questions about accounting.
I’m Kirsten Gibbs, and I help accountants to build an autonomous practice they can step up with or away from whenever they want without killing themselves or their business in the process.
Today, I’m talking to Neil Cornford, from NPC financial. Neil calls himself a hybrid accountant. He does whatever’s necessary from data entry and reconciling bank statements to full management accounts, statutory accounts and tax returns. And for an AIM listed international PR company, he does cashflow management, all of which he does mainly from home, which has made the current situation much easier for him to adapt to, which is very good for you Neil.
Neil Cornford: [00:00:53]
Kirsten Gibbs: [00:00:55]
Hi. So let’s dive straight in. What is accounting for?
Neil Cornford: [00:01:01]
Well, my goal is to always make sure my client can’t say, “I didn’t know that” it’s a question so that there are no surprises.
Kirsten Gibbs: [00:01:14]
Neil Cornford: [00:01:15]
It’s about amassing information, in such way to identify where the client is financially, where they’ve been and where they could be heading.
You could say the past defines the now and the now defines the possible futures.
Kirsten Gibbs: [00:01:35]
Ooh, very nice. Okay.
Neil Cornford: [00:01:39]
Or another way to look at it is accounting is the process of ensuring that the financial side of any project or process is under the control of the person running it. That doesn’t mean that it’s going exactly to plan.
But the key thing is if it is going to plan, then you know about it, but more to the point, if it’s not going to plan, then you know, and then you can find out why.
Kirsten Gibbs: [00:02:07]
Yes. I think what I particularly like about what you’ve said is the idea of the possible futures. We have a habit of picking the future that we want to see and only really looking at that.
Whereas what you’re saying is things can go different ways and they’re not all bad. Some of them are just a roundabout way to get to where you want to. but equally you want to know when it’s not going in the direction you thought it should, so that then you can make another decision about what you do.
Is that right, is that making sense?
Neil Cornford: [00:02:43]
That’s absolutely right. And it’s also a question of looking at it the right level.
Kirsten Gibbs: [00:02:49]
Neil Cornford: [00:02:50]
you, there’s a phrase I was told by, a very old accountant years ago, that many, a mickle makes a muckle.
And the principle there is, is that if the top line, if the headline figures are appearing to be what you would either like them to be, or expect them to be. Then if you drill down into the detail, then you could sometimes get an insight into why it’s not doing what you think it’s doing.
Kirsten Gibbs: [00:03:24]
Neil Cornford: [00:03:24]
so that you, we said about surprises, when you can look through the whole thing, anything, ah, that number’s higher are I forgot I had to do that. I did a trade show or something, and that’s why those numbers are looking a bit odd for looking forward to cause you, if you project forward based on those figures, then you’ll be wrong because you probably only do your trade show once a year. Which guys next month you’ll figure should be the same figures without the trade show.
Kirsten Gibbs: [00:03:54]
Yeah. Okay. So it’s about having the detail to drill down into for the explanation.
Neil Cornford: [00:04:01]
Yes I mean, that phrase drill down is something which software, software companies fully enjoy and effectively it’s double clicking on the numbers, but you’re sitting in front, but, from a more, a more global basis its the explanation of going underneath the cover if you like underneath the bonnet of the car and having a tinker round and see either why its doing what it should be doing or why it’s not doing, or if it’s rattling slightly, then you can try and work out where the rattles coming from.
Kirsten Gibbs: [00:04:36]
Yeah. Okay. Essentially for you, accounting is about bringing together information so that people can make appropriate decisions.
Neil Cornford: [00:04:51]
That’s absolutely right.
Kirsten Gibbs: [00:04:52]
Okay. Brilliant. So given that’s what we think it’s for, can accounting help to solve some of the big problems we face today? You know, things like climate crisis.
Neil Cornford: [00:05:05]
Well, yes, absolutely. And it’s interesting you should bring up this particular hot potato because clearly its very much in the foreground. And ironically, it seems to have been sidelined recently because this recent COVID-19 situation.
Climate change has been pushed to the side, except for the fact that they suddenly point out that with less flying in the air, suddenly the climate is improving. And therefore it’s a, there is a positive benefit for this COVID-19, which is a bit of a bizarre principle.
Kirsten Gibbs: [00:05:41]
It is a bit bizarre, but also I guess, possibly the biggest benefit of it from the perspective of the climate change problem is that. We’re actually getting a physical demonstration of the kind of thing we might be needing to do to make a difference. And that always helps doesn’t it. If you can actually say, ah, if we do this, this kind of works, this is the impact
Neil Cornford: [00:06:07]
thats absolutely right. however, one of the climate changes particularly interesting, or because the, A lot of the measurement or the benefit of any particular solutions, is subject to huge amount of interpretation,
Kirsten Gibbs: [00:06:30]
Neil Cornford: [00:06:31]
for instance, I think it’s possibly changed now, but it was a statistic that the offshore wind turbines, consumed more energy in there. production and their location and their maintenance than they would ever produce during their life.
Kirsten Gibbs: [00:06:51]
Neil Cornford: [00:06:52]
However, if you don’t take a punt, then you would never allow technology to catch up and actually reverse that trend. Initially you kind of want to push for it. and just to see how it turns out, but what it doesn’t mean is it’s necessarily going to be the instant solution, which the press quite often likes to it, to be.
Kirsten Gibbs: [00:07:17]
Yes. And it’s like all these things, I, you probably know I’m a bit of a fan of systems and a lot of measurement depends on where you draw the boundary of the system. So for example, I went to a thing quite a few years ago now where they were talking about, these boilers that are fired by fired. fueled with wooden pellets and they were talking about how environmentally friendly they were and all the rest of it, because the boundary of the system was drawn before you counted the lorries, driving around the country, transporting this stuff.
And you think, yeah, if you put the boundary there, it looks very green, but if you include the lorries, it isn’t. so that’s the other thing is it’s about where do you draw the line of the system that you’re looking at. And of course the problem with the climate is the whole world is the system. We have to look at the whole world.
Neil Cornford: [00:08:16]
And when you’re drawing that line or coming up with your measurement, your basis of measurement of the cost benefits of any potential solution, then it’s the process of accounting is what gives you the, the grounding.
Kirsten Gibbs: [00:08:35]
Neil Cornford: [00:08:35]
Because the philosophy behind accounting is to produce a solution, but through a myriad of different levels of detail and it’s those levels of detail, which determine the end result.
Kirsten Gibbs: [00:08:50]
Neil Cornford: [00:08:50]
And in your scenario there about, you know, the transport, that that’s a good example of things like the, the phrase food miles in that you get cheap food from overseas. But if you then add on the environmental impact of sticking it on a jumbo jet and sending it over, then you kind of think that sometimes it’s devaluing that scenario
Kirsten Gibbs: [00:09:17]
Suddenly it’s not really cheap anymore.
Neil Cornford: [00:09:20]
Exactly. And accountancy is the means by way, you can evaluate something on a way which is measurable.
Kirsten Gibbs: [00:09:31]
Neil Cornford: [00:09:31]
And unless you can measure from period to period or across other bases, then you’ve got no way of drawing any conclusion, which you can rely on, even if there are assumptions, sometimes huge assumptions built into that scenario.
So it’s kind of. A long winded thing, but it, you just need the detail there.
Kirsten Gibbs: [00:10:07]
So in other words, we can actually use accounting to achieve anything we want because accounting is simply a means by which we measure it. And the thing to be careful about is what it is you’re measuring. Really? Yeah.
Neil Cornford: [00:10:26]
That’s exactly it. It’s having the, the parameters correct.
Kirsten Gibbs: [00:10:31]
Yeah. And that’s down to us. Accounting is the tool. Yeah. We are the people who choose the parameters.
Neil Cornford: [00:10:39]
It’s a little bit like interviewing a politician. You have to tell them in advance what your questions are so they can work out what the answers are going to be.
Kirsten Gibbs: [00:10:50]
Neil Cornford: [00:10:51]
You suddenly think of a different question to ask because it’s relevant or it’s spills out of something else then of course, that throws them because they haven’t prepared that.
Kirsten Gibbs: [00:11:01]
Yeah. Okay. Okay. So really, so we’re saying accountancy’s about scenario planning and what ifs. Yeah?
Neil Cornford: [00:11:14]
It is it’s. I, constantly build models. And we’re not, and we’re not talking about racing cars and things. You’re talking about a model which is designed to achieve a particular end. Let’s say that it is blending your, profit and loss account for the last six months, and you then want to show what you think the profit and loss is going to be for the next six months.
And when you build that, you build in various scenarios, so that you don’t have to keep on altering the numbers. You can alter them en bloc. So for instance, in your turnover, if you can, you can say, okay, well, if the turnover increases by 5% per month, then you can set that at 5% and then the turnover figures going forwards will always read off that number. And if the gross profit you want has a particular figure, let’s say it’s 30% and you want it to actually go at 35%.
So you have different buttons, so you couldn’t immediately say, okay, well, if I, if I change the turnover, so it increases by 10% per month then it will automatically alter all the next six numbers. . and then you can increase the gross profit percentage and you could do a combination of the two and the more different scenarios you can have, you don’t have to rewrite the model whole time. All you’re doing is putting in specific key points.
Particularly with the current process, you can say, if my turnover is that and grow, my gross profit because economies a bit Slack, the gross profits going to be low because I’m not going to be able to make up such a margin. So if I then reduce my labor costs by 5%, will those three scenarios all together?
What then will that produce? I actually, I need to reduce my cost by 7%.
Kirsten Gibbs: [00:13:22]
Yeah. So it helps you. Yeah, it helps you have a look at what might happen, so you can tweak the bits that, you know, will influence it .
Neil Cornford: [00:13:31]
Exactly. But at minimum, a minimum level of intervention. So you don’t have to keep on recalculating numbers, retyping in numbers, you’re getting all the numbers being fed off one initial presumption.
Kirsten Gibbs: [00:13:46]
So effectively what accounting is for what, how it can help everything really is that whole allowing you to test potential options before you commit to any particular, one of them. Which is pretty powerful stuff, actually.
Neil Cornford: [00:14:05]
Yeah. I mean, it’s, I wouldn’t, I suppose to be fair, it’s the word accounting has got various different sort of real definitions, but to me, the role of an accountant is to be able to use these techniques to, establish, as we’ve said, where you’ve been, where you are and where you’re going. But then it also describes the processes by which you achieve that. In other words, the recording of the sales i.e. putting out sales invoices, putting out, of recording your costs, doing the payroll, it’s all parts of the same scenario.
But as a global principal, getting all the detailed elements together, controlling what you can of those, identifying what you can’t control and then seeing what the likely result would be under those circumstances. And certainly accounting does make the world a better place purely because it gives you information.
Kirsten Gibbs: [00:15:19]
Neil Cornford: [00:15:20]
there’s nothing worse than wandering off into the distance, not having a clue where you’re going,
Kirsten Gibbs: [00:15:25]
Ha, ha no, you could be getting lost
Neil Cornford: [00:15:28]
a lot of businesses do get caught like that.
Kirsten Gibbs: [00:15:30]
Neil Cornford: [00:15:31]
For instance, a printing company, could say, Oh, I think our production is good. We need to buy a new machine. Then we can do far more. And then you can get what you , could refer to as an expansion trap, because then you could spend a huge amount on it and realize that you’ve probably got five years worth of sales at your normal margins in order to pay for that machine.
Kirsten Gibbs: [00:15:58]
Neil Cornford: [00:15:58]
That may not be cost effective, or it may be the wrong time to do it.
Kirsten Gibbs: [00:16:03]
Neil Cornford: [00:16:04]
So you’re trying to make the company, the business, a better place by giving it room for expansion, but you’ve got to control the way it’s done. Otherwise, simply you run out of cash and it will never happen.
Kirsten Gibbs: [00:16:18]
Yes. And then you’ve got, you’ve got the opposite kind of problem. havent you, which is which often happens, which is people go off and they sell, sell, sell, fall over that way
Neil Cornford: [00:16:28]
And you can use that scenario, follow that through. And the principle of a sale is not a sale until it’s paid.
Kirsten Gibbs: [00:16:36]
Neil Cornford: [00:16:37]
You can get a wizzy salesman who can fill up your order book, lock the factory down because you got a hundred percent production for a period and then find that the client were not never able to pay for it in the first place.
Kirsten Gibbs: [00:16:53]
Yeah. I mean, I would actually go further and say a sale is not a sale until the customer has received the product and is happy with it
Neil Cornford: [00:17:02]
Oh no, it’s after that, its when it’s paid for,
Kirsten Gibbs: [00:17:05]
but they may have paid for it before. In my book, they would be paying for it before.
Neil Cornford: [00:17:10]
Yeah, that’s true. I mean, in the modern world is more credit driven rather than cash driven. Yeah. Ironically, one of my clients, many years ago started dealing with Russia and it was quite, sobering the fact that they expected not to be given credit. And therefore they were geared up to paying cash in advance because nobody would give them credit.
Kirsten Gibbs: [00:17:34]
Yeah. Well, that’s fair enough.
Neil Cornford: [00:17:39]And because they expected it, then that’s what we did. And of course, as a bonus, for anybody over in Europe, expects credits. Some as far as up to 60 days. Even 90 days.
Kirsten Gibbs: [00:17:48] Yeah.
Neil Cornford: [00:17:49] And because of that, the customer can be completely happy with the goods and have built them into its own product or something. But until they’ve actually paid for it, technically speaking, they don’t owe it.
Kirsten Gibbs: [00:18:02] Yeah. Wow. Okay. thank you, Neil. That’s been really interesting and helpful. I hope you’ve enjoyed it.
Neil Cornford: [00:18:13] I have it was a interesting experience.
Kirsten Gibbs: [00:18:15] Thank you so much.
Neil Cornford: [00:18:16] That’s a pleasure. Thanks, bye.
Kirsten Gibbs: [00:18:18] Thank you for listening to the pioneer accountants podcast. Where pioneering accountants answer big questions about accounting with me, Kirsten Gibbs. If you’re a pioneering accountant and you’d like to be part of this podcast, just head over to my website, www.gibbsandpartners.com and send me a message. I look forward to hearing from you.