A Good Accounting Department

A Good Accounting Department…can make you money.

This article will give you ideas to help your accounting department make more money by empowering management with information.

Phil’s Profit Points™ in Brief:

• There are three kinds of accounting departments: historians, supporters and builders.

• Their particular role depends on their focus and where they spend the majority of their time.

• Historians report the past.

• Supporters report the past and the present.

• Builders report the past, the present and the future.

• The type of accounting department that you have is due to the direction and resources that you have given them.

The accounting department’s roles and importance depends on a few key factors:

• The accounting system used and how well it integrates with operational data, customer relationship management information, or independent spreadsheets.

• The general ledger does not need to be the company’s main information system. If it is, you may be lacking important operational data and real-time reporting.

• The structure of the accounting department within the company’s organizational structure. Is it strictly a backroom processing centre or is it connected to management’s need for ongoing financial advice and support?

• The leadership of the accounting department. Is the person a leader, a peer or a subordinate of the business decision-makers?

A good accounting department can strengthen the management information system because accountants are experts at measuring activities and results. The best accounting departments balance information about the past, the present and the future. And, they provide useful information to management on a timely and regular basis.

The Historians: Focused on the Past

The historians spend most of their time processing last month’s information. Any requests for current or future information are dealt with when time becomes available and after prior deadlines are met. In other words, the managers requesting information have to wait. This frustrates everyone and hampers profitable growth.

It’s even worse if most of the time is spent creating financial reports for external users such as bankers or the tax man. This is common when a small business had their accounting system set up by their external accountant and management’s needs were not prioritized or even considered at all. You can fix this by helping the department move to becoming supporters.

Accountants as Supporters

Supporters provide information on both the past and the present. They can report on current operating results in real-time, given a day or two for processing. This is highly achievable for most businesses that don’t have real-time operational data and is accomplished by measuring – and reporting – the key results every day.

If you manufacture products, then measure the number of units or square feet of what you produce. If you are a service company, then measure the number of billed hours delivered in the day. Focusing your managers on increasing daily production with the current resources is the fastest way to increase your revenues. If you accelerate collection of those revenues, then you will have increased cash flow.

Accountants as Builders

The most effective accounting model is when the accountants are financial builders and have balance between reporting the past, the present and the future.

The Builders: A good balance between reporting the past, the present and the future.

Builders can contribute to future strategy by generating resources (time, people, money) for future expansion and pursuit of yet unknown opportunities. They can monitor your performance against your budget and business plan so that you know what’s working, what isn’t working, and what you need to do to improve results. They can predict the future based on your historical and current performance.

Action steps:

1. Ask your accountants how much time they spend on the past vs. the present vs. the future.

2. Analyze the reports you get and assess whether they report on the past, the present or the future.

3. Note the date that you receive your month end reports. The later this is, the less time available for reporting on the present and the future.

There is no magic formula to allocate the time. However, the more efficient the systems and processes are, the faster the historical information can be prepared and the more time and capacity there is for working on the present and improving the future.

It’s up to you, the president or business owner, on how you guide and support your accounting department.

A good accounting department can help you grow your business and increase profits by ensuring that your management team has the information to analyze historical performance, current performance and future opportunities.

Tough Question

Which accounting department have you created: historians, supporters or builders?

From the Piggy Bank

The best opportunity for accelerating profitable growth is to ensure that your managers receive real operating and financial information as quickly and frequently as possible.

Have a profitable week!