The Italian mathematician Luca Pacioli was the first to publish the Venetian method of bookkeeping over 500 years ago, and this has been the primary source of modern accounting ever since. You can see the relevance of his work by looking at some of the accounting terms and principles still used today, which include:
- double entry accounting
- debits on the left, credits on the right
- closing entries are made at the end of the year
- trial balance at the end of the accounting cycle.
Dating much, much further back than Pacioli’s work, however, is the use of statistics to gain information about populations. It is thought as far back as ancient Egypt a periodic census was taken for building pyramids.
What is the relevance of this to accountants and advisors?
While modern accounting practices provide a systematic record of financial records pertaining to a business, they do not show how this information is situated within a broader context. If the methods of Pacioli are combined with statistical analysis of populations, however, the accountant can expand towards providing their clients with more and more insights into their financial results.
The process of financial benchmarking is one approach to doing just that. A ‘benchmark’ was once used by surveyors, whereby a notch was chiselled into a permanent structure, and a tool inserted which would form a ‘bench’. The bench or ‘benchmark’ was then used by the builders and craftspeople to guide their construction. In much the same way, a sample or census of business’ performance forms the financial benchmark and managers and business owners use this reference point to guide their business decision making process. There is no limit to the insights that can be gained through this process, but a list of some of the more common ones are:
- are my staff over or underperforming?
- am I paying too much rent?
- what kind of profits should I be aiming for?
Whatever the business problem, Pacioli’s methods combined with statistical surveys of populations will generate significant insights, elevating the accountant or advisor to the next level.
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