When it comes to meetings, what topics are most frequently discussed? Many revolve around ways to refine processes, increase profits, add revenue, or control labor costs, but when’s the last time you talked about accounting processes or systems?
In many businesses, accounting seems to chug along without lots of thinking or re-evaluating. If bills are paid, income and expenses are tracked, and financial information can be referenced when needed to answer questions, then it’s assumed that the existing accounting system and processes are working just fine.
But are you missing an opportunity to improve profits? After all, accounting is the department that keeps the scorecard. The reports you use to make decisions about the company are generated by your accounting system. If your accounting system’s data isn’t being captured into detailed accounts, then you can’t extract what you need to accurately measure costs, review profit margins, and track key performance indicators.
Let’s look at this from another perspective. How does your accounting impact sales? Your sales team may be given quotas or asked to focus on selling Item X or Service Y because those segments appear to make the company the most money. Sales goals are set based on this information, a pricing or discount strategy is designed, and energy and money are spent marketing to these segments. But what if the numbers you used to make these decisions weren’t accurate? Oops!
How does this happen? Consider this example. The cost of office space, along with insurance, maintenance, and other common costs, 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’s expensive to insure—but that cost is commonly allocated to all business segments? Some units will be penalized, and the true cost of the high-cost unit is underestimated. Pricing is set incorrectly, and then the sales team ends up selling products that aren’t the best ones to focus on, which impacts profits.
And what if labor or other costs aren’t properly recorded in the right accounting buckets? Tom or Sally in accounting may not be aware that the accounting processes they inherited are out of alignment. Everything begins with how accounts payable and payroll data are entered. Often, an expanded chart of accounts with more detailed accounts needs to be set up.
How can you avoid missing an opportunity to improve? Be sure to really look at your accounting systems and processes. They redefine how you grow your company. If your accounting has not been examined recently, then it’s worth the time to do so.
Not sure where to start—or what to look at? We can help you examine your accounting systems and the way your accounting is done today to improve profits.
Jeff Bronswick is CEO at Bronswick Benjamin, a Chicago-based certified public accountant and NSCA Member Advisory Councilmember.