All entrepreneurs, managers, or start-ups want to improve the performance of their businesses by implementing performance indicators, or maybe just to get an overview of their activity at a time that is not necessarily the account closing date.
Let’s take a look at how their chartered accountants can assist in setting up these control tasks, which often can be difficult to deal with.
I – The benefit of ongoing control over management and performance
During operating time, companies have to respect the previously defined financial balances. However, it often happens that the estimates do not match reality: sales growth is slower than expected, operating expenses turn out to be higher than the original forecast.
Here are some reasons to monitor a company’s financial situation:
- Set realistic objectives in terms of turnover, expenses, etc.
- Anticipate the launch of a new activity or the recruitment of new employees.
- Anticipate cash flow problems.
- Negotiate an overdraft or other short-term financial solutions with the banker.
- Negotiate cash injection with investors.
- Maintain business performance.
II – The different management tools
Intermediate accounting statement
An intermediate accounting statement is an account closing during the financial year, which will not be filed with the business tax services. This document includes a balance sheet and an income statement. Depending on the purpose and recipient, interim accounts can be established at any time of the year.
To establish this statement, it is necessary to register all accounting entries on the date of the statement, proceed with a stock’s inventory, calculate the amount of provisions, as well as prepaid expenses and enter all fixed assets in progress or exiting in order to calculate the depreciation charges.
It should be noted that the process can be simplified depending on the desired objective.
One can for example make a rapid evaluation of the stocks if they are not preponderant in the activity of the company or if one is able to make a rapid reliable approach of the amount of the inventory.
It is also possible not to proceed with a balance sheet, nor to record the depreciation allowances for fixed assets if you only need to know the company’s cash flow.
It is a key performance indicator (KPI) that measures the health of the company and is also a decision support tool.
Before setting up the dashboard, the manager must set precise and relevant control objectives.
The first task consists in finding the indicators adapted to the company and according to the objectives.
There are 4 categories of indicators to be used and adapted according to the company’s activity:
- Economic indicators that measure results and costs.
- Physical indicators that measure product quality, order processing, logistics, etc.
- Human indicators responsible for measuring the performance of productive employees (consultants, workers, etc.).
- Project monitoring indicators that help to measure the progress of a project.
The entrepreneur carefully chooses its indicators according to what they want to measure.
Once the dashboard is built, it will be important to check that the indicators are clear and easy to use and updated on an ongoing basis. It is also important to automate data integration.
The dashboard is a measurement tool that highlights the differences between forecasts and the company’s actual level of activity. It must therefore analyze these differences and understand the reasons.
In the event that the objectives are not achieved, it is obviously necessary to put in place one or more corrective actions in order to fix it.
Cost accounting is a method of processing financial data from general accounting that explains the results of the company. While general accounting gives a general view of the company’s accounts, analytical accounting presents a detailed view of each product or activity. Thus, it makes it possible to precisely identify the costs of the various functions and to identify the areas of performance and non-performance within the company. It also explains any deviations that may result from budget forecasts.
There are different methods for calculating costs in analytical accounting, the main ones being:
- The full cost method: This method allows the company to explain the result generated over the financial year by each product. For this, it is necessary to distribute the charges between the products manufactured or sold in order to determine their costs.
- The variable cost method: It consists in taking into account only the expenses directly related to the activity of the company. These decrease in the event of a decline in activity and increase in the event of development. This method has the advantage of determining the company’s break-even point, but it does not take into account all the costs that the company must bear.
- The direct costing method: This method takes into account the variable costs and the fixed costs which are independent of the level of activity of the company. This method makes it possible to determine more precisely the break-even point of the company.
- The standard cost method: the company determines in advance the costs it will have to bear and compares them with the expenses actually incurred. With this method, the company knows its margins, it establishes its forecasts and budgets.
- The ABC method (Activity Based Cost): It is based on the costs per activity. Thus, the company is divided by activity and not by functions or products: an activity consiss in carrying out a set of tasks to contribute to the value of a service or a product.
III – The chartered accountant partner of the company in the monitoring of its performances
The role of the chartered accountant is vast; they can assist and advise managers, among other things, in management studies, monitoring of company performance, forecasting studies, etc.
Here are some examples of how we can help you with this:
- The establishment of an intermediate situation according to a regular rhythm: It is possible to agree with the accounting firm that the latter will establish a provisional closing of the accounts every 6 months or every 3 months (for instance). It will then be enough to provide, according to the scheduled periodicity, the information it will request (the valuation of stocks, the list of provisions to be constituted, etc.), and this provisional situation will be provided to the company according to the requested deadline.
Then an assistant will be able to comment and explain the reasons for the provisional result.
It is of course possible to request a statement of accounts at any time for any exceptional reason.
- The implementation (and possibly the monitoring) of a dashboard: An accountant can help you determine the most relevant and reliable indicators for your company (knowing that these are never completely identical from one company to another).
They can then assist you in building the dashboard by choosing a formula suitable for the size and particularities of the company. It is indeed very important that updating it does not require considerable work.
They can also, of course, assist the management manager in monitoring the dashboard and interpreting the results.
- Implementation and monitoring of analytical accounting: The chartered accountant holds all the data from general accounting that will feed the cost accounting. They can assist the company in choosing the method best suited to the structure of the company.
They can also set up cost accounting and monitor the results from software linked to the general accounting software.
- “Soldes intermédiaires de gestion” (Intermediate management balances): This is an annual income statement which is submitted each year with the annual accounts, and which gives more precise information on the management of the company by breaking down the net result into several indicators which are:
- Gross profit margin.
- Added value.
- Exercise production.
- Earnings before interest, taxes, depreciation, and amortization (EBITDA).
- Gross operating income.
- Current result before tax.
- Exceptional result.
- Net result.
Finally, we specify that we can also set up performance indicators or provisional plans in any other form adapted to the request of business leaders.
Is that clear to you? If not, contact us for more information!
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