By Peter Trimm, Product Manager, Sage One Accounting.
Keeping your accounting records in order to satisfy tax and compliance obligations is the minimum any business is required to do, however it doesn’t have to stop there.
Tracking what you’re selling, who to, at what profit and costs is key for a successful business. This information all amounts to identifying what you are good at and what makes you the most amount of money, whilst keeping the overheads and finance costs down.
What part do you play?
When I decided to be an accountant all those years ago, I realised I wasn’t going to be happy just producing ‘pages of numbers’ for the ‘history books’, I wanted to play an integral part of the business management process. As I say, we need to do the compliance stuff, but what really interested me was using numbers to help grow businesses and maximise the value for its owners.
One of my first jobs was working for a small printing and publishing organisation in London. We had a vast range of customers, mix of machinery and resources, and we could pretty much take on any type of work; from leaflet printing to large runs of magazines. We were a one stop shop and could do all of the work in-house from design, production of artwork, print, bind and ship. Our sales people could sell well and the turnover was good. The thing is we weren’t making profit; we were breaking even at best!
I recall the board meetings we had, trying to understand why we had a successful sales force, skills and resources beyond our competitors and yet we weren’t making any money. When work was estimated and quoted, we knew we needed to be competitive, so margins were tight, but in theory enough to cover indirect costs (overheads) and return a profit. I asked some questions, “Which type of work makes us the most amount of money? What machinery, materials and skills do we need for this work”? No one really knew for sure but their instinct was that the big printing contracts for magazines were keeping us afloat, keeping the presses running, and as long as we were getting utilisation of the presses we were ok.
Don’t be afraid to change
I introduced a new way of accounting; we needed to get to grips with how each contract was performing, from one-off jobs to the big regulars. We implemented a time recording and costing system and tightened up material stock control. The costing system was maintained and up to date with the time that was spent on each job and the cost rates reflecting the staff and machinery being used. In the accounting ledgers I also started to analyse the costs at a much more detailed level and this fed back into the costing system. Any direct costs such as materials and outsourcing were also recorded against each job; this was for work we could not do ourselves due to insufficient capacity. The results were surprising.
Knowledge is power
Once I’d collated the data the reason for low profits was almost obvious. The big resource hungry contracts were running at a loss on big expensive machinery, whilst the specialist security printing (I can’t tell you what we were printing, if I did I would have to kill you!) was amazingly profitable. The mix of people, machinery, levels of outwork and pricing meant we were fantastic ‘security printers’ and average jobbers in the general commercial print arena knocking out magazines. It also appeared we were outsourcing profitable work and producing the loss making work in-house! Double whammy!
We refocused, changed the product and market mix to suit our skills and resources and scarily gave notice on one or two contracts to free up capacity for more lucrative work. Within a year we were in profit and as a result we were taken over by the world’s largest printers.
Think outside of the box
For me, this goes to show that accounting doesn’t need to be boring and just add burden to a business. It can illuminate and guide management in the right direction. I would say, when setting up your systems, don’t limit them just to do the minimum; think about your markets, products, customers, projects and organisational structure. You never know what you’ll find out!
As the Product Manager for Sage One you’ll see over time, as the product evolves, my passion for accounting and how it can help businesses grow and improve… watch this space!