Finance is a creative process

 

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We've all heard the term 'Creative Accountancy' when it is associated with dodgy dealings and tax avoidance but I would argue that both financial planning for business, and effective management accounting are creative processes which require a creative mind to work well.

In the same way that an artist working in oil will add layers of paints, or a ceramicist will create a shape which is then enhanced with glazes and the firing process, a good financial practitioner builds a model of the financial process and has to understand how different elements will work together.

The medium which we use, numbers, spreadsheets, graphs and formulas are the same as the artist's canvas, paints, brushes and palette or the designers computer, tablet, stylus and software and the end result is just as beautiful.

There has been much written about the creative process, just google it and you will be presented with hundreds of pages dedicated to the 10 stages or the creative process, or 4 stages of creativity or similar. These can all equally be applied to the process of constructing a financial plan for a business. I'll use the 4 stages linked to above as an example;

Stage 1: Preparation

You can't just write a financial plan, or create a financial model. You need to collect all the relevant information, how much things cost, how big is the market, how does the business make its money, how does the business spend its money. You can't create a financial model without this step. Your brain is using attention, reasoning and planning to gather information.

Stage 2: Incubation

This is the understanding part, to see how the model is going to fit together. Which elements affect each other (how does an increase in sales affect cost, how will marketing activity affect revenues, how may seasonality affect the flow of cash into and out of the business). This stage is the one where you may want to climb in the bathtub, or go for a walk and stop consciously thinking about the problem you are trying to solve.

Stage 3: Illumination

Once you've understood the model, and then you've used the tools of the trade to build it (normally a spreadsheet) you will reach this stage. That classic "eureka!" moment where you understand how the business will make money (and that the business will make money). It's not quite Kaufmans "connections automatically, subconsciously collide and then reach the threshold of consciousness" but it most certainly is "OMG that's the idea!".

Stage 4: Verification

In the same way that the creative process is not finished at the eureka moment a financial plan or model is never really finished. It has to be communicated to other people who need to understand it, the finance specific language should be removed, and graphs and charts used to express the model in a clear and understandable way. The process is also never complete, assumptions made in stage 1 must be tested and verified, the relationships worked out in stage 2 must be accurately measured by ensuring the correct information and management accounting techniques are used and the eureka moment needs to be proven to be correct.

​So if you are a creative person who struggles with finance, look at it as a creative process and you may find it a whole lot easier*.

*Although, as with the creative process you need to learn to use the tools of the trade, an artist cannot paint without a brush, so don't try to create a financial model if you can't yet use excel. In the same way that you may have learnt to use photoshop, or to model clay you will need to learn the language and tools of finance.

Blog post by Steve Aicheler, Entrepreneurship Officer
March 2016