“It is a truth universally acknowledged, that an accountant in possession of a good fortune, wants nothing to do with the sales department.” So might Jane Austen have said. And so might many think. But it’s notable that the misquote comes from Pride and Prejudice, and so might the age-old antipathy between accounts and sales be similarly based.
The simple fact is (of course) that most sales departments don’t know what they’re doing. So the prejudice is fair. The unfortunate fact is that accountants don’t know what they should be doing, and so can’t take pride in pointing out that fact.
And this is a profit issue; perhaps one of the biggest there is. And it is also quite emphatically an accounting issue, so it belongs here in ProfitWEB. Let’s bring this back to basics. Sales (and marketing) departments say it is their business:
1. to identify customers
2. to persuade them to buy
3. to get them to place orders
It’s their argument that this is all about the future. It’s up to others, they say, to actually deliver the stuff, account for it, and collect payment.
Most accountants have seen their role in this area as being about:
1. accounting for what has been supplied
2. collecting the cash.
You can see why traditionally there has been conflict. That’s especially true when it comes to budgeting and cost control, because accountants just see sales and marketing as an expensive overhead (which is true, they usually are). And yet neither side is right. And there are massive, and good reasons why sales, marketing and accounts should all be talking to each other.
The process should in fact start with the budget. It will be a recurring theme of ProfitWEB that budgets that aren’t linked to the physical realities of what actually goes on in the business aren’t budgets at all. They’re just rather fanciful projections. So, a sales budget (which is almost always the most difficult to produce) has to be originated in the sales department and should show what products will be sold:
1. in what volumes
2. at what prices
3. with what discounts
4. at what times
5. on what payment terms
for the budgeting period (usually a year). Salespeople, in my experience hate being nailed down in this much detail. They’d rather just say “we think sales will be £1.2 million in May”. Well, that’s not good enough. That means that no one can:
1. budget for their costs
2. plan production
3. appraise the chance of the target being achieved
4. appraise after the period end why sales were more or less than expected, and why gross profit was likewise.
So, if an accountant is going to win the argument with sales the first thing they have to do is take the high ground and force the sales departments to budget in this way. If it’s done persistently and logically this argument can be won. It’s not easy. It takes time. By definition the result is always wrong, but it makes the sales team accountable for what they say, and that’s the key issue.
It’s key because once the sales team have committed themselves to anything other than a game of golf you can make them report outcomes against expectations. Take some examples:
1. no set of management accounts is complete without a cash flow forecast (another subject we’ll return to later on ProfitWEB). How can such a forecast be prepared for any time scale beyond about eight weeks if future sales aren’t known? So it’s critical that a sales department not only agrees a budget for future sales, but also updates it regularly. Which means daily in practice, or it won’t be done.
2. this rolling forecast then becomes the “sales pipeline”. It’s as important to report variances in this expectation as it is in past achievement. After all, nothing much can be done about the past. Something can be done to avert looming disasters – whether they be too few sales, or so many that bankruptcy through overtrading looms on the horizon. As such it is vital that the sales pipeline is published, frequently.
3. if the actual product mix is fundamentally different from that which was forecast you’ll have two more issues to contend with. The first is a supply problem on the popular product lines. The second might be redundant stock where sales don’t meet expectation. In either case the accountant who doesn’t know that these issues are coming up will, inevitably, fail to react to them. And mistakes here can be expensive.
4. the accountant should check that the result in a month is pretty much in accordance with what the pipeline suggested it was going to be. This is a vital internal audit function. Sales people are notorious for three things. The first is wanting commission at all times on everything. We all know this must be resisted unless due – which is good reason for checking they’ve really delivered. The second is that they will commit to nothing – which, if it’s a problem you suffer will mean they persistently under predict likely sales. This will in turn have a disastrous consequence for ensuring timely supply, and nothing puts customers off more, so the trait has to be identified – and corrected (by persistent nagging if need be). The third is that they exaggerate. If this is the type of salesperson you have beware of the pipeline that always “melts away” or “slips” as due date for the order approaches. This trend is at least as bad as the second – especially if you are responsible for cash flow management.
There are other reasons for holding sales people to account – but by now you’re getting my drift. If you can nail the sales team down, and keep them nailed down half the problems you have to report are no longer your problems – they belong to the sales team. They have to account for them, albeit with your assistance. But then you just become the messenger. Buts as you can readily identify fro whom you’re reporting this might just mean you avoid the shots when they’re fired, because they’ll be more appropriately aimed elsewhere.
So get the sales team to account – that should shut them up.