📬 Fixing finance... when it ain’t broke

On November 18, SeatGeek’s Assistant Controller Kyle Levy is going to show you how his accountants (not engineers) built their own close agents.

He’ll cover how his:

I’ve seen people rebuild the same schedules every month-end too many times. Kyle’s going to share the exact order in which he’d ‘de-spreadsheet’ his month-end.

I’m looking forward to it.

Want to see how to put Maintainable Free Cashflow to work in your business?

Join me on November 12 at 12pm EST as I walk through a live case study on how to implement maintainable free cash flow.

Click here to save your spot:

👉🏼 Tough situation got you spinning in circles? Send me your questions, and you might just see yourself in next week’s Mailbag. Submit anonymously using the button below:

Here’s what’s on the menu today:

Now, let’s get into it.

Dan from the US

I'm a recent hire in finance at a highly successful, privately owned $500M engineering firm. The company has grown steadily at roughly 10% annually for decades. There are no plans to sell, and leadership is perfectly happy maintaining that trajectory.

My challenge is figuring out how finance can create meaningful value in a company that's already performing as well as its leadership wants it to.

The existing finance function is relatively unsophisticated, relying on a top-down budgeting process that's barely changed in a decade. There's enormous opportunity to modernize forecasting, reporting, and financial planning, but I'm struggling with the value proposition.

When leadership is already happy with the results, how do you convince them that improving the finance function is worth the time, effort, and disruption?

I think the first thing to recognize here is that the business is clearly doing something right.

A rugged 10% growth rate every year for decades, through endless business cycles… and I assume it's puking out plenty of cash for whoever owns it. Most businesses would kill for that.

Sure, they could roll the dice, manage the business more "professionally" (whatever that means), and try to drive 30% growth or another 2% of margin. But what if that disrupts the magic in the machine and breaks the whole thing?

It happens.

So I think an inherent level of "if it ain't broke, don't fix it" is perfectly rational.

Now, the other side of that is that nothing lasts forever. Or rather, everything does... until it doesn't.

Businesses like this can be exposed to long-term disruption risk, precisely because they’ve never had to develop the muscles to respond when something fundamentally changes. And in the world we're living in right now, that disruption might be closer than you think.

So what does this mean for you?

Well, I think going in and explaining hypothetically how better reporting, forecasting, and planning cycles will improve their business is probably a waste of time. They'll politely nod along and then carry on doing exactly what they've always done.

Instead, I'd take two approaches.

First, build the finance function through the questions the business is already asking.

Don't invent questions for them. But when they do ask something, answer it brilliantly.

If someone asks why gross margin has moved versus last year, take that question and produce a really thorough piece of analysis, presented beautifully and clearly. And then perhaps show them where margin is headed next quarter based on the current trajectory.

Do this often enough, and it won't be long before somebody asks whether you can produce something similar for another metric or part of the business.

Before you know it, you're building a more sophisticated finance function almost by stealth. But you're starting from where they are, not where you want them to be.

Second, be ready when the opportunity presents itself.

Let's say the business gets caught off guard by something. Something that challenges leadership's understanding of their own business, or exposes a blind spot that better financial visibility could have addressed.

That's your opportunity.

Not to say "I told you so," but to say, "Hey, to make sure that doesn't happen again, we could introduce this. What do you think?"

Suddenly, you're offering a solution to a problem they actually recognize, rather than trying to convince them they have a problem in the first place.

But I come back to where I started.

Don't expect to walk into a business that's been phenomenally successful for decades and deliver some magical epiphany that changes its entire philosophy on how to operate.

And frankly, why should they listen to you if you do?

Your job is to help them make a great business even better, without breaking the things that made it great in the first place.

TLDR: Solve the problems they actually care about, build credibility, and let demand for better finance grow organically.

Julian from Germany

I'd love to hear a rant about "lean accounting". I’ve been reading up on lean manufacturing (The Lean Turnaround by Art Byrne, for instance), and his critique of standard cost accounting completely caught me off guard. It's a take I haven't encountered before. What's your view on it (maybe I was hiding under a rock)?

This is the first paragraph of his chapter on standard cost accounting:

"Standard-cost accounting systems are incompatible with Lean. They are antithetical to Lean practice because they encourage and reward precisely the behaviors that you want to eliminate. In fact, I think of standard-cost accounting as “the anti-Lean.” For instance, in a Lean world, inventory is considered the root of all evil because it hides waste. The standard-cost absorption accounting method takes the opposite view: it rewards those who build inventory, allowing them to defer a portion of their production costs to a later period."

Thanks for the exciting question, Julian.

Yes, I'm familiar with this debate, and I sit firmly on the side of the Lean manufacturing guys on this one.

I was CFO in a business where one part of the operation used standard costing and another didn't. So it was a constant debate.

I once saw a factory ramp up production in the final month of a financial year, paying overtime, running the factory ragged, and driving inventory through the roof. All so they could take the inventory absorption credit that would help them hit their EBIT target and collect their bonuses.

Meanwhile, we went into the new year with masses of excess inventory, a disaster for cash flow, and a factory that needed a ton of additional maintenance.

All to make an accounting number look better.

And the same thing happens with the assumptions built into standards.

Budget owners become sophisticated at building fat into their standards. The procurement team that adds another 2% to the expected purchase price before every standard cost roll. Or the factory manager who builds in 7% yield loss rather than the achievable 5%, because they know they'll be managed on variances against those standards.

The cumulative effect of these things over years can be absolutely cancerous for business performance. Because the complacency erodes a culture of performance.

Now, that doesn't mean standard costing is bad. In fact, I quite love it in principle.

But there is a fundamental tension between standard costing as an accounting system and standard costing as a performance management system.

If you've been reading my stuff for a while, you'll know that I advocate designing internal accounting policies and management reporting to drive the best possible business performance and behaviors. Then leave your central accounting team to figure out how to reconcile those measures back to GAAP-compliant financial statements.

Most businesses default to doing it the other way around.

Internal accounting is an incentive system. Which means whatever methods you adopt come with all kinds of second- and third-order consequences.

Elon Musk famously talks about his "idiot index," comparing the cost of a finished component with the cost of its underlying raw materials. It's a way of cutting through the accounting noise and asking a much more fundamental question about what something should actually cost.

I think we, as an accounting profession, have been guilty of treating accounting as an island. As if accounting simply records the consequences of what happens in the business, rather than influencing what happens in the first place.

But that couldn't be further from the truth.

The decisions we make about accounting and performance measurement have enormous knock-on effects on the decisions people make throughout a business. And if that weren't the case, we wouldn't need much of a finance function beyond the bookkeepers.

So whether standard costing is right for your business is a question you need to answer based on your particular circumstances. And, frankly, for many manufacturing businesses, I'm not convinced we've found a universally better alternative.

But the decisions you make about how you set standards, how you manage variances, and how you reward people against them will absolutely drive behavior and therefore performance in your business.

For better or worse.

TLDR: Standard costing isn't inherently bad. But use accounting measures to reward the wrong behaviors, and you'll get exactly what you deserve.

Synergy Skeptic from US

Long time reader; this is literally the best CFO content on the internet. It's like having an incredible mentor and business school education packaged up together. Huge props.

Question: I have been in corporate finance for 13 years with great progression. But I’ve never been a whiz at mental math, and I often feel self conscious about it. Honestly, it's something I've struggled with my whole life. I know that I have many other strengths, but I am the type of person that dwells on their weaknesses.

I worry that when I eventually become a CFO, I will be judged on it. That I'll miss something when reviewing a presentation or freeze up when trying to do quick math for a live earnings call question, etc.

Do you feel mental math agility is a required skill for a CFO? Or do I need to let it go, embrace my strengths and find ways to overcompensate, like overpreparing or using cheat sheets, etc.?

Hey Synergy Skeptic,

Thanks for the question and the kind comments.

I've got good news and bad news. Let's start with the bad news.

It definitely helps to have quick mental arithmetic as a CFO. Being able to manipulate percentages, convert units into dollars, multiply by 12 or 52 to move between monthly, weekly, and annual numbers. These are things you use constantly.

It's something I've always been pretty quick at, and the best CEOs I've worked for were just as fast. It helped me keep up.

Yes, you can pull out your calculator for everything, but it's more about a way of thinking than the arithmetic itself. Great CFOs (and CEOs) have the unit economics and commercial drivers of their businesses burned into their brains. Their muscle memory does much of the math without them even thinking about it.

Now for the good news.

You can practice this stuff. And the calculations you need are often variations on the same handful of things.

I worked in a business where we were constantly converting weekly impacts into annual numbers, and vice versa. At first, you have to do the mental math. But it isn't long before you intuitively know that $1m a year is roughly $20k a week (so $2m is $40k or $10m is $200k) without even processing a calculation. Or you instinctively understand what another 1,000 units of weekly volume does to your fixed cost absorption.

And the really good news is that the math you need as a CFO isn't particularly difficult.

You won't be using differential calculus or complex econometrics. And if you ever do, you've absolutely got permission to engage your "slow brain" and work through it methodically.

The most complex math I've encountered in finance was in pensions. That's a great example of where you need a model, because changes in discount rates and inflation assumptions can interact in ways that aren't remotely intuitive. You don't need to work that out in your head. You need the model to tell you the answer.

So yes, I would work on your mental arithmetic. Business-specific cheat sheets are a good idea, but I'd focus even more on practicing the mental calculations that come up repeatedly in your business. Over time, they'll become second nature.

My own mental math isn't what it was five years ago. But I'm pretty sure that after a few months back in the heat of battle, I could sharpen it up again.

And one final confession. I'm a geek, but one of my guilty pleasures is doomscrolling math tutor videos on Instagram. It's a surprisingly good way to keep sharp!

TLDR:  Mental math helps, but it's mostly practice and repetition. Learn your business's numbers until the calculations become instinctive.

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ICYMI, here are some of my favorite finance/business social media posts from this week.

This is the most accurate statement I’ve heard on the bottleneck to enterprise AI adoption right now:

I’m running a research project to build a proper picture of how companies actually run their budgeting processes, using real experiences from real finance leaders.

The idea is to give us something we’ve never really had: a way to benchmark our own budgeting process against peers. And hopefully ‘borrow’ a few good ideas along the way.

But I need your help.

The survey takes around 7–10 minutes. Everyone who takes part gets a detailed copy of the research when it’s published in November.

If you’ve been anywhere near a budget this year, I’d love your input.

Last weekend’s Playbook gave you an inside week-by-week look at my calendar through a complex CFO role. 

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need