Accounting: switching focus from legal obligations to company's objectives
Every company is expected to keep books to comply with legal obligations. It is well known, however, that general ledger accounting, being structured to comply with fiscal and corporate laws, records economic and financial events with the exclusive aim of finding the company's yearly results thus not allowing for a real comprehension of the causes of the same results.
In the current ultracomplex economic environment, companies need meaningful informations in very short time, to be managed effectively and efficiently. At this purpose, a key point is the implementation of an analytical chart of accounts.
As an example, all the possible breakdowns of a revenue account could be taken into consideration. We can consider a revenue account in its entirety or split it by the range of products or by the individual product; it can be subdivided by geographical area, by customer classification, by agent, and so on. This method, and the analyses that it makes possible, support the management in taking strategic decisions, as well as on a day to day basis.
In our analyses, we adopt the Direct Costing Method that allows for:
- 1. using a rational approach to the analysis of the company;
- 2. foreseeing the effects of swift changes in the production volumes;
- 3. fixing prices consstently to the different market conditions and the actual sales policies;
- 4. evaluating the impact of structural changes on variable costs and hence on profits.
Budget and Variance Analysis
As it is well known, companies don't go bust because they run at a loss, but because they lack the liquidity to sustain their own financial cycle.
For this reason it is vital to provide the company with analytical tools capable of foreseeing the future cash requirements in order to avoid a liquidity crisis that could put strain on the same company; liquidity crisis can be triggered by different causes: seasonality, market contingencies, deferment of collections, investments. Knowing its cash-flow prospective, the company can tackle in advance the episodes of financial stress, with their different time lenghts and deepness, planning adequate internal or external fundings.