The following content is sponsored by Eide Bailly. Accounting is the language of business. Your financial data tells the story of where your organization has been, where it is now, and where it can go in the future. Because accounting is critical for your organization, it’s important to not only do it right, but to do it strategically so that you can make the best decisions with the information you have. 

Your business is like a living, breathing organism. As it grows, changes, and evolves, your accounting practices must follow suit. Whether your accounting processes need a few small tweaks or a giant overhaul, the starting point for your evaluation is the same: the beginning.

Understand Key Metrics

Accounting starts with an understanding of our business and industry. A crucial component of that is understanding key metrics that will allow you to make solid business decisions. These fundamental accounting metrics provide detail into your organization’s financial wellbeing: profit and profit margin, payroll, accounts payable and accounts receivable, inventory, and cash flow.

Determining What Information to Track

Tracking the right information is key to having accounting records you can use to make informed decisions. You’ll want to capture all transactions that occur in your business (cash and noncash) in the simplest and most efficient manner. You may need to consider tracking your business transactions in more depth.

• Should I be tracking direct and indirect costs related to construction contracts so I am able to view the profitability?
• Do I have different departments, product lines, divisions, programs, etc., that I should be tracking so I am able to view the profitability?
• Do I pay commissions, and should I be tracking transactions, such as revenues, by each sales representative to determine the proper calculation for those commissions?
• Do I work in several states, and should I be tracking transactions, such as revenue and payroll, by state for tax return preparation?
• What sales tax jurisdiction do I need to track for sales tax reporting?
• Do I need to track certain items, such as meals, donations, etc., for tax return preparation?

There is a key difference between the numbers that are easy to track and the ones that are meaningful to track.

It is vital to be intentional in what you’re monitoring and measuring to track your success or anticipate your future success, and sometimes those numbers take more effort to see. It may take redesigning the reporting so that you can see a different output, which then entails also redesigning the input. It can be a time-consuming process, but the value is in the new possibilities and opportunities you can see for your organization.

In this simple example, you can see that by displaying your data by product type rather than by total, it’s easy to evaluate where to invest more resources. If you focus on Product B, you’ll keep only $0.20 of every dollar in sales (and that’s before any overhead costs). An increase in sales volume in this category would not equate to the largest increase in net income or cash flow. Perhaps it makes more sense to focus sales efforts on Product A or C, where the profit margins are higher. By aligning the details of your data input around your desired reporting output, you can see actionable information to help drive decision-making.

Tracking Metrics With Financial Statements

Accurate financial statements are key to effectively running your organization and making smart decisions. Your financial statements can shed light on areas of your business and can help you identify areas for growth and improvement.

The balance sheet tells you about the resources in your organization. It is measured at a point in time and can tell you things like: 

• How much cash do you have?
• How much do people owe you?
• How much do you owe others?
• How much equity is left in your business after all your liabilities are taken care of?
• How much of your business is financed by you or your partners?

The income statement tells you about the profitability of your organization and is measured for a certain period of time, such as a month, quarter, or year. It can tell you things like:

• What was the gross margin for the period?
• What were your operating expenses for the period?
• What was the net income for the period?

In addition, if you are tracking your income and expenses by profit centers (e.g., job, department, product line, etc.), you would be able to see measurements by those profit centers. This is especially valuable as it helps determine where you are making money or losing money.

The statement of cash flows tells you about the sources and uses of your cash. In other words, where did it all come from and where did it all go?

You can take your financial statements to the next level by comparing your current performance against historical performance, benchmarking yourself against your industry and peers, and projecting your future performance.

The Importance of Disrupting the Status Quo

If you always do what you’ve always done, you’re only ever going to get what you’ve always gotten – that is, until your system completely breaks, and you find yourself in crisis mode. By starting to evaluate your processes now, you can get ahead of the crisis and start to see operations improve throughout your entire organization.

If you’re ready to see the possibilities for your organization, we can help. Inefficient processes or staffing challenges don’t have to stand in the way of your success.