How Does Your Accounting Impact Your Profits?

Accounting is one of those items in a business that just seem to chug along. Think about your meetings. Most revolve around ways to refine processes, increase profits, add more revenue, labor costs, etc. The items that rise to the surface are the ones that get the attention. When was the last time your accounting processes or system was brought up in a meeting? No one talks about their accounting system or processes. It’s just assumed they work.

Accounting is viewed as the department that keeps the scorecard. This is a huge missed opportunity. The reports you make decisions about to run the company are generated from your accounting system. If the data in the accounting system is not being captured into detailed accounts then you cannot extract the type of data needed to accurately measure costs, review profit margins, track key performance indicators, etc.

Take this one step further. How does your accounting impact sales? Your sales team may be given quotas or assigned to focus on item X or service Y because those segments appear to make the company the most money. You set goals around this, design a pricing or discount strategy, spend energy and money marketing to these segments and then find out that just maybe the numbers used to make those decisions are not 100% accurate. Oops!

How did that happen? Let’s start easy. The cost of the building or rent, insurance, maintenance and other common costs are or should be allocated to different parts of the business. If the allocation is made based on square footage or perhaps the number of employees or some other metric, is that the right choice? What if the insurance is high because one product line has a chemical component that is expensive to insure, and that cost is commonly allocated to all business segments? The result is some units are penalized and the high-cost unit’s true cost is underestimated. Pricing is set incorrectly and then the sales team is on the street selling products that may not be the right ones to focus on.

This situation continues. What if labor or other costs are not being properly recorded in the right accounting buckets? Tom or Sally in accounting who always have their heads down or in the computer screen may not be aware that the accounting processes they inherited from the prior employee are out of alignment. Everything starts with how the accounts payable and payroll data is entered. Often there needed to be an expanded chart of accounts with more detailed accounts set up.

Look at your accounting processes. They can redefine how you grow your company. If accounting has not been examined in recent years, it’s probably worth a look. We know what to look for and are ready to help you examine your accounting systems and the way your accounting is done today.

 

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