Very few businesses achieve the higher levels of profitability and bottom-line results that are available to them on an ongoing basis. A good accountant, whether an internal financial manager, or external accounting advisor, has at their disposal a myriad of ways to positively affect the net income of the entities they serve. In this post, I want to highlight six fundamental steps that accountants can take that will help enhance enterprise profits and cash flow. Here they are:
- Take a holistic view of the organization – Profit improvement initiatives are most effective when they take into account all of an entity’s key components. Consideration should be given to the sales, operations, finance, and administration functions, as well as to the key people, process, and technology elements. The various activities of an organization are interrelated and need to work in harmony for profit maximization. While isolated revenue enhancing and cost-reduction measures can be beneficial, an enterprise-wide profit improvement program will yield better overall results.
- Pay attention to processes – Sloppily run organizations never produce the kind of financial results that can be had by effective, efficient operations. The key to having a well-greased, “running like a sewing machine” business is having carefully designed processes and procedures that utilize the right blend of people and technology throughout the organization.
- Insist on “good” financial statements – It’s amazing to me how some entities simply have no real clue as to where they are financially, as a result of poor accounting and financial reporting. Quality financial statements must be accurate, complete, timely, and well-designed. It goes without saying, but any profit improvement program must be predicated on fundamentally good information. Good accountants do whatever it takes to produce this data that’s so desperately needed by management.
- Implement segmental reporting – I’ve seen way too many companies that do not have a good understanding of the extent to which various components of their organizations are yielding positive or negative results. The cure to this is a system that provides profit/loss statements in a variety of views, such as by product line, customer, state, division, or location. Direct and indirect costs need to be matched with the associated revenues in these or other segments. Then, and only then, can management decisions be correctly made about growing or curtailing one or more areas of the business.
- Maintain strong budgeting systems – Any good profit improvement initiative will include a strong budgeting methodology. Too many companies and other organizations are running “rudderless” due to weaknesses in this area. High-quality accountants insist on a comprehensive, enterprise-wide budgeting system that involves proactive input from key executives and managers, not only on an annual basis, but periodically throughout the year as well.
- Set goals and measure results – Every person in an organization should have clear goals for the upcoming month and year. When added up, all of these goals need to result in the overall revenue, gross margins, overhead, and bottom-line expectations established by the management team. Actual results need to be compared against targeted activity on at least a monthly basis, with explanations provided for any large variances.
Accountants, does your employer or client have gaps in any of the above areas? If so, get focused and get busy. Your efforts, or lack thereof, can and will have a significant impact on the future profits/losses of the business or entity in question and for which you play a key role. Business owners, is your accountant helping you or hurting you in these matters? Once you answer that question, ask yourself whether or not you need to have a heart-to-heart talk with your accountant…or perhaps find a new one.