The accountant bow tie: a reminder of the importance of thinking multi dimensional

What do we mean by that? Wait till the end to understand our reference to a bow tie.

Data is at the core of today’s corporate life, with the deployment of business intelligence, and data mining, which results in AI and fact based decision.

But accounting is still stuck in the two dimension world, that has defined its excellence forever.

Two dimensions

Have you realized how accountants often think with a two way selection.

• Debit and Credit – to have balanced books, thanks to Luca Pacioli, the double entry has defined accounting since the middle age. An accountant will see an event, and classify it as a credit or a debit.
• Accrual and Prepaid – another excellent binary thinking, how to match revenue and expense in a timely manner. One of the worst things to explain to non accountants.
• Balance sheet and Profit and Loss statement – even though they had a child, the cash flow statement, those two financial reports are at the core of accounting and your number will have to find a spot on either of those reports.
• Reconciled or not – of course, an account is either reconciled or not, the difference is either zero or not, but it means that often accountant think in right / wrong, black / white.

Even though an accountant brain is nurtured to think in two dimension, managing a company is based in nuances that require more than that.

What is a multi dimension thinking

Thinking in a multi dimensional way is something that accountants do, they just don’t realize they already do it.

• Most accounting systems use sub ledger or interface systems to process more efficiently the data. From A/P to A/R, from a POS / PMS System to a Capex tracking system, the General Ledger gathers data but is limited to the debit credit while those interfaced systems gather a much richer data through additional information such as time of events, multiple addresses, ….
• No chart of account can track all the information that is needed. For Travel expenses, you may want to know Where, Who, For What reason, while for Credit Card expenses, you may want to relay it to the income transaction, and you want your payroll to be followed by position. Here you are already starting to think multi dimension.

Without realizing, the efficient accountant is already using a starfish, multi prong system of analysis.

Look for excellence not perfection

One of the challenge of multi dimensional data is to get it organized and meaningful.

As reminded by Alice Boyes in Don’t Let Perfection Be the Enemy of Productivity, more data is not always better. More data is the risk of the multi dimensional analysis that can become overwhelming. The first step is to accept excellence, not perfection; the accountant needs to shed the need to have the data “right or wrong”, and accept the threshold of accuracy (a constant Misc. item is not good, but let’s focus on the 80% first).

Accountants are so used to have two financial reports to tell them the whole truth, they tend to think that the analysis will be the same, and you can cram all the details on one report, all the comments in one format.

Break free of the one way to analyze data.

• Create an Income analysis that is based on client type / market / product. Pick what matters for your business to better understand it. While for hotels a market segment analysis is important, what about an analysis by type of room?
• Create a simple way to track the expense report – Who / Where / Why (prospect, vendor, team, self).
• Create a way to track your expense that shows trend. Do you really know all the software you pay for? Organize them by business reason – like your subscription to Netflix, Acorn and Amazon, you will realize there is a huge cost creep.
• Love using a Credit Card or Amazon account to pay for things? You just lost so much valuable data. Find a way to extract it – may not need to be in your accounting, but in a sub analysis system that matches accounting.

Keep your P&L and Balance sheet simple, and create the subsequent report you need. Think of the financials as a snapshot, that concentrates data from all the subsystems, but also spits out different reports.

To run the business, you don’t really need to know if it’s an accrual or an actual, so why not create segments on your entry that will always show the month of the expense, the vendor, and the expense name. By being consistent, you can truly analyze, and cater to different audiences (the accountant will know if the same is reaccrued month after month, the business person will know the vendor and expense).

Visualize the financials as the center of a bow tie (how a propos for accountants) – or a knot. The knot hold it together, to make it strong, with all the input on the left, and the output on the right.

When the accountants start thinking multidimensional, they create the pass to quality data for the financial analysis and create more value.

Picture source: Accountant Bow tie by Cyberoptix Tie Lab in Detroit