Modern finance is evolving – and with it, the expectations placed on accounting and finance professionals. Today, it’s no longer enough for finance teams to report the numbers; they’re expected to interpret them, explain them, and connect them to the broader business narrative, writes Peter Spence, FCMA, CGMA, Associate Technical Director, at AICPA and CIMA.
As finance professionals, we’re trusted with the numbers that represent a business’s financial performance. While numbers are our comfort zone, they’re not always interpreted in the same way by every report user. Stakeholders, including investors, expect us to tell the story behind the numbers because financial results are the outcome of countless decisions, activities, influences, processes, and events. If we don’t tell a compelling performance story, investors may fill in the gaps for themselves. Their interpretations might not align with reality, potentially affecting perceptions of value.
The challenge for us finance professionals, is that we don’t naturally think of ourselves as storytellers. If the term “storyteller” sounds more suited to your marketing, PR, or investor relations colleagues, then it’s time for you to rethink your role as a modern accounting and finance professional in business. Today’s finance leaders are expected to transform robust data into meaningful performance insights. The story of your business is an insightful, nonfiction account of performance. Where there are key data blind spots, draw on the judgments of experts to formulate a credible and trustworthy account.
Context matters. Start the performance story by reminding report users who your business is for, what it does for them, and how it makes money. This is your business model, and it should be introduced with a clear purpose statement that captures its essence. Next, explain key elements of the operating model, covering key processes, physical and technology platforms, organizational structure, supply chain, intellectual capital, and governance. Because businesses must evolve to stay competitive, you must tell the story of change, which is captured by the strategy. Strategy is for keeping the business model relevant and the operating model competitive.
Business is ultimately about people and its culture, or its shared values, beliefs, and employees’ expected behaviors. A strong performance story explains how culture and the operating model reinforce each other. For example, if your culture encourages entrepreneurial behavior, your operating model must support this. Without this alignment, stakeholders may question the business’s fitness to execute and its future competitiveness, regardless of how compelling the business model appears.
1) what the business intended to happen; 2) what actually happened and what managers did to achieve what happened; and 3) what this means for what is estimated to happen next. If these strands aren’t clearly connected, doubts may arise about the sustainability of performance, which can impact valuation.
One powerful way to strengthen your story about the business’s prospects is through graphical depictions of past trends. While regulations often require comparisons against prior year, there’s no rule against showing longer-term trends. A trend becomes meaningful with at least four periods of data. When paired with a narrative explaining managerial actions, trends can significantly boost credibility and trust. Yet, they remain underused.
Crafting a compelling external performance story starts with internal management information. It’s tempting to assume that internal stakeholders are already familiar with the business’s purpose statement, business and operating models, strategy and culture – but research shows otherwise.
Most employees don’t know their company’s purpose statement or how their work contributes to strategy. Finance teams may lack deep operational knowledge, while operational managers might not fully grasp the strategic impact of their operational activities. If the performance story in the management information is written by operational managers, strategic impact (connectivity) risks being unclear. Similarly, if the story is written by the finance team, there is a risk that a lack of deep operational knowledge could lead to superficial narrative. This dichotomy is borne out in recent research by AICPA and CIMA and can lead to weak internal narratives, making it harder for CFOs to tell a compelling, relatable, and trustworthy story externally.
Storytelling should be a collaborative enterprise. The role of the finance professional is as devil’s advocate, quality manager, and business partner. Finance business partners should engage operational managers in performance conversations. These conversations strengthen the reliability of performance stories. Just as with financial data, once agreed, these stories should be documented and stored. Once stored, these approved operational narratives can be drafted into an overall business performance story using generative AI.
Modern finance professionals understand that numbers alone are open to interpretation. By telling the story behind the numbers, CFOs can guide stakeholders toward the right interpretation – protecting and defending valuation.
It’s no longer just about reporting the numbers. It’s about reading between the lines.