Why is it that all year end accounts look the same? Does that reflect the information that readers need?
Accounting regulations are massively complicated and I am not disputing the need for that; it is important to make sure that any two sets of accounts can be compared with each other and take the same perspective.
The same thing happens with accounting software: when you set up software from scratch you get a basic, blank set of accounting codes that is a best estimate of what most businesses need.
In both cases the one size fits all approach is fine when it comes to working out the bottom line profit, when you’re simply deducting all costs from total income. But it’s totally insufficient if you want to use your accounts to provide information to manage your business with.
What sort of information might you need?
- What about income: are you happy to lump all sales together, or would it be useful to compare revenue from different types of sales?
- How about splitting sales by product type or customer location?
- And what about your costs? You don’t want to over complicate things, but typically the objective is to separate the costs associated with delivering the product or service from the general costs of running your business.
This lets you measure how things are changing and provides answers to questions like “how come are we busier now but not making any more money?”
How about looking at
- A comparison of your sales mix (spread of sales by product type),
- a comparison of margin per customer,
- the resulting change in percentage gross profit made on sales each month as a result
With a little planning and some organisation you can set up the accounts so that they give you simple m information that you can use to work out what actions to take.
If you want to develop this idea further, what about adding in some comparisons with non financial figures? Working out production wages per working day, or sales per hour worked?
How do you work within the structure? Do you add new codes for things you want to measure, or do you just squeeze them into the existing structure?
At the end of the day, while there is a legal duty to keep accurate accounting records are you in business to create data for the accounts, or are they there to provide you with information?
Take a look at my post about what goes into good management information here to find out more.