Accounting literate?

By | February 21, 2015

Consultants are not accountants.  Yes, there are a lot of consultants who work at the big 4 (Deloitte, E&Y, KPMG, PWC), but they are not accountants.  If you ask them to balance credits and debits on a ledger, they will look at you like a confused dog.  Yes, we took financial accounting.  Yes, we can read income statements and balance sheets.  No, we are not accountants.  Trust me on that one.

Consultants are not investment bankers.  For the uninitiated, this a common mistake.  Just because we graduate from MBA, work with executives, wear ties, and ride a lot of planes. . . we are not all the same.  One of the clearest differences is that consultant often do income statement work, while bankers work on the balance sheet:

  • New market-entry strategy (volume = income statement)
  • Online customer segmentation (volume = income statement)
  • Trade discount analysis (price = income statement)
  • Strategic sourcing for lower cost on critical parts (expense = income statement)
  • Tax-aligned supply chain (tax = income statement)

Varying levels of fluency / illiteracy.  You cannot be good at everything, and accounting literacy is no different.  Clearly, if you consult financial services industries (banks, asset managers, insurance companies) or work with the financial types in companies (Corporate Finance, Treasury, FP&A), you better know your accounting.

Short of that, there is a minimum requirement for all consultants who interact with executives.  Can you explain the flow of funds between the financial statements?  Does the equation A=L+E mean something to you?  Can you delineate gross and net profit? Where do you come down on the argument of labor as COGS vs. SG&A?

Confession: During the first few years of my career, I did not understand financial statements.  Yes, I studied them in school and passed my series 7 stockbroker license, but in reality I could not succinctly explain the difference between COGS and SG&A expenses. Not good.  I still remember walking into the CFO’s office asking for his help sorting out above/below the line expenses for an executive summary I was putting together.  Cringe-worthy.  Don’t fake it. Do the work.

If this is making you a bit uneasy, good.  Consultants are only as good as their last project.  Time to get smart.  Enroll in this free online Coursera accounting class here. Introduction to Financial Accounting, starts May 4th, 4 weeks, based on the Wharton first year MBA class.  Great value, only cost is your time.  Sign up.

Coursera Wharton Accounting

Related posts: