Are You Proactive Or Reactive?
Oct 21, 2013
I am currently working on a costing project with one of my clients that has been an ongoing work in process. We are finally getting to a point where we are just about to wrap-up and have the change to fully roll out our plan. We are excited to be at this point and my client is thrilled to have good numbers. One main reason this owner realized that he needed help with his costing was that he was having major swings in his numbers from month-to-month and had little to no predictability.
He called me the other day and said that he still is having these issues and he is concerned. I assured him we would look into this and we will integrate this into part of our plan in the costing process. His major concern was a few months back his profit was about 18% of his sales, but now in the last month with those same sales it was 24%. He couldn’t understand why this would be, especially because he knew in the last month there were some one-time charges that should have made profitability lower not higher!
One reason I believe this is occurring is because of timing of items being recorded. I do not think that the bookkeeper is always getting items recorded in the correct month. I know that she thinks she is and I believe she is making an effort to do it, but often times I think she misses the correct time period. This makes for high expenses potentially in a month with lower sales and then lower expenses in a month with higher sales. This makes it next to impossible to plan!
If you cannot trust the numbers that you are getting it is impossible to be proactive. Instead, you are forced to always be reactive. That can be more costly and cause more headaches! We plan to look at the way things are being recorded and the timing of them.
Another thing that has occurred is when we adjust the inventory each month we actually end up having negative expense accounts. We are certain we are not taking too much expense out, but taking from accounts that we feel the expense should have been in, but obviously are not in.
For this issue we plan to look at the preset accounts in his software and make sure these are being recorded correctly. Of course it is also possible that due to timing we are taking out more expense than was put in, because even though the expenses should have been recorded in this period, it may mistakenly end up in the next period.
It is important to make sure you are always looking at the comparability of your numbers and making certain they make sense. Accurate timing and reasonable accuracy are vital to the ability to be proactive and not reactive!
Categories: Cost Accounting