Bad Data, Issue 6: Adventures in Missing the Point

By: Jeff Heybruck

In this installment of our Bad Data series, we look at a source of financial risk that rarely appears on anyone’s radar: the possibility that the person maintaining your books or leading your accounting team doesn’t actually understand the business well enough to do the job effectively.

Bad data doesn’t always come from broken software, missed reconciliations, or outdated reports. Sometimes it comes from the person in the chair.

A Question That Should Have Been Easy

I’ve been conducting phone screens this week, helping a homebuilder client hire a Controller. The client has outgrown our services, and we’ve mutually agreed it’s time to bring someone in-house. No drama; just the natural next step. On paper, the candidates looked exactly right: years of experience, homebuilding industry background, clean career progression.

I asked each one the same question: what’s the difference in accounting between a spec home and a custom home?

For a Controller-level candidate in the homebuilding industry, that should not be a difficult question. Three candidates. Zero correct answers.

The client (who has no accounting background) got closer to the right answer than any of them.

Knowing the Workflow Is Not the Same as Understanding the Business

What I observed in those interviews shows up more broadly than most business owners realize. A lot of people in senior financial roles know the process. They know which screens to navigate, which buttons to push, and how to close the month without anything catching fire. They can speak the language of accounting with enough fluency to sound credible.

But fluency in the process is not the same as understanding the business behind it.

When you ask them to step back and explain why the numbers look the way they do, or what those numbers actually mean for the business, the gap becomes apparent.

And that gap is a data problem. Because if the person classifying, coding, and reporting your financials doesn’t understand what they’re looking at, the output of that work becomes less reliable than it appears.

What Gets Missed When Understanding Is Shallow

A finance team member who knows the workflow but not the business will tend to maintain the books rather than manage them. That distinction matters more than it sounds.

They are less likely to catch a classification error that doesn’t trigger an obvious flag. They are less equipped to recognize when a number looks technically correct but is economically wrong. They won’t raise questions about trends because they don’t have the context to know what’s unusual. And they won’t be able to translate the financials into something that helps leadership make a better decision.

The books stay clean on the surface. But the information inside them quietly becomes less trustworthy.

A Simple Test Worth Applying

We use one practical filter: can they explain it in plain English — without pointing at the screen?

If someone on the finance team needs to pull up the software to walk you through a process, that’s a signal. It usually means they understand the steps but not the substance. The process has become the job, and the business has become secondary.

The standard shouldn’t be can they keep the books accurate? It should be do they actually understand how this business works?

For the Curious: The Answer to the Question

Custom homes (builds owned by the customer) flow through the P&L as work progresses. Revenue is recognized when draws are invoiced or received, and costs hit COGS at the same time.

Spec homes (builds owned by the builder) live on the balance sheet until the home sells. Costs accumulate as an asset, revenue isn’t recognized, and the full P&L impact doesn’t occur until the sale closes and WIP moves to COGS.

That’s not an advanced concept. It’s a fundamental one. A Controller in this industry should be able to explain it without hesitation. The fact that three experienced candidates couldn’t is worth paying attention to.

The Takeaway for Business Owners

Most business owners assume that if someone has the right title and the right resume, the financial information they produce is reliable. That assumption is worth examining.

Credentials and experience don’t always equal understanding. And when the person behind the numbers doesn’t fully understand the business, the numbers they produce carry risk you may not be able to see.

Part of what we do at Lucrum is help owners evaluate not just the data, but the systems and people producing it. If you have questions about whether your financial reporting is giving you an accurate picture of your business, we’re glad to take a look. Schedule a complimentary consultation and let’s talk through it.

Because strong decisions start with Confidence in the Numbers.