Great things can be accomplished by teams. And the best teams are made up of players who have unique roles that mesh and multiply their teammates.
What is the unique role of the CPA? The thing we bring to the table of business?
I propose that CPAs should own the “profit equation” – that it be our domain.
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Revenues – Expenses = Profit.
It’s a pretty simple formula really. You wouldn’t think there’d be a whole lot to it. Though we see again and again how it is misunderstood, mis-tracked, not planned for, not re-evaluated, and not evolved.
When I think about the profit equation, I think about its different dimensions:
—Design: The entrepreneur has the spark, the drive, the conviction. But the CPA can take that energy and channel it into a profit equation that works — taking the raw material of the entrepreneur and giving it form in a viable economic design, including identifying the assumptions and risks that need to be true for it to work.
—Populate: As a business enters into the day-to-day, it needs to capture and populate its systems with transaction data. This could come thru write-up and bookkeeping, automated entry, interfacing financial systems, and more. The point, though, is that the profit equation design has to be populated with real data.
—Monitor: Raw data is being accumulated constantly, but eventually it needs to be interpreted and understood. What is it telling us? Is our design working? Are our design assumptions proving true? Are there unexpected phenomena arising?
—Update: The step beyond monitoring is design updates. If the assumptions aren’t working out, design changes need to be made. And if the assumptions are working out, the principles of entropy eventually take hold: every business will need to adapt and evolve over its life. Revisiting and re-thinking will always be a part of every healthy business.
—Report: Both internal and external parties want to know, and sometimes they want assurances about what they’re seeing too. Presenting the equation to others in a way they understand enables decision makers. And the more complex the system, either in number of components or in degrees of separation of data from decision maker, the more integrity must be added to the equation presentation.
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So there it is. The profit equation from start to finish. CPAs play a role in each step, sometimes more than one, but there’s always the common theme. It’s easy to get hazy as lines are blurred by modern developments, but the core remains.
And the core is ready to move to the next level in the coming years, under your hands.
(As originally posted on the Thriveal blog.)