I spend a lot of time talking to finance professionals. The team, candidates, members of finance teams at clients, other colleagues, friends, etc. I’ve always been struck by how there seems to be so many fewer finance professionals compared with accounting. This is especially pronounced on the services side, where for every finance-dedicated firm there are maybe 100 accounting services firms. There are, of course, some skill set overlaps between finance and accounting, yet they are fundamentally different capabilities that split along the lines of the corporate org chart – accounting and treasury on one side, financial planning and analysis (FP&A) and corporate development/M&A on the other.
Here we will offer three reasons why this quantity differential has existed, and how that gap is closing.
Historical Higher Education Gaps
Look at the business courses available at most universities, and you’ll see a smattering of accounting and finance classes. However, I believe the argument can be made that the accounting classes translate more to the practical work world than the finance classes. You can learn about cost accounting in school, yet most universities aren’t offering classes in financial planning and analysis, or FP&A. Most of the finance courses are related to corporate finance and are more theoretical. Add the sheer number of accounting firms recruiting at universities, and it’s no wonder why the accounting engine has been fed the way it has.
Part of this has to do with the shifting landscape of the finance function in today’s business environment. Finance has become the data hub of organizations, responsible for aggregating, transforming, visualizing, and analyzing data from all company systems (including accounting). Those data skills are becoming critical for today’s finance professional, yet in Corporate Finance 101 you learn about weighted average cost of capital and unlevered beta. Not quite as practical for running the day to day of a business.
That said, the tide is turning at the higher education level. For example, at Wharton, the Operations & Information Management (OPIM) concentration (which I understood as computer systems and computer science-y when I was there) has expanded to become Operations, Information & Decisions (OID) which includes decision processing, information systems, and management science. Pair that with traditional finance courses, and you are cooking with fire.
Experience Gaps & Business Prioritization
Most entrepreneurs don’t come from a finance or accounting background. If their careers began in large corporations, finance and accounting were likely seen as a big black box where info went in and output came out. The singular box is important here, as there is a tendency to conflate finance and accounting if you haven’t had direct exposure to the inner workings of the departments.
Further, when starting a business, accounting historically reared its head before finance. Uncle Sam wants his tax return? Better get some accounting help! Want a loan from a bank? You’ll need those tax returns (the absolute bare minimum). The basics of accounting start out as mission critical – invoicing your customers, paying your bills. Finance capabilities, such as data analytics (reporting/BI), budgeting, forecasting, scenario analysis, and transaction execution, may not be on the radar.
This too is changing. Data tools are becoming more accessible. Being data-driven and ROI-focused from the get-go is becoming a necessity in certain sectors (e.g. an e-commerce site that drives the bulk of its revenue from ad spend). Accounting, with its finite set of rules, has been any easy target for technology/software (here too, finance is behind and outnumbered). We’re heading toward a day where companies hire a business analyst, data analyst, or FP&A professional before they hire a senior accountant. This represents a monumental shift in the sequence of team-building.
Talent Trapped Upstream & Within Other Models
Even if businesses want more of that finance goodness, many of those assets are trapped. Or at least out of reach. Good finance professionals are expensive, and historically have been deemed a luxury associated with large organizations. When is the last time you saw an FP&A or corporate development silo on a small business org chart?
Much of the “finance services” side is geared into business models tied to transaction catalysts, such as investment banking and private equity. These models have fee structures and compensation models that may be the richest versus every other competency in the services game. The finance guys figured out more lucrative business models with high-end compensation? Go figure. This has contributed to the limited access to finance capabilities for companies, especially smaller businesses. These resources are locked up unless you are dealing now, or in the case of private equity, you’ve already dealt. They aren’t bad, they just have catalysts that may not fit your specific current needs. In a world characterized by disruption, their models remain largely the same as 40 years ago.
This shift here is in alternative service models, with the opportunity for longer-term relationship frameworks compared to purely transactional engagements. There aren’t many of us (yet), but we are here.
They’re All Related
Not surprisingly, all of these are interrelated. Lack of education, historical lack of business prioritization, and model traps have all played a role in leading to today’s finance professional landscape, both in terms of quantity and quality. While that is slowly and surely changing, there remains a ways to go. Fortunately, we are on our way.