Basic Metrics
for Measuring and Assessing Your Accounting Department
In the job of managing a company, the CEO/business owner has many tools available to help decide when a department is functioning effectively or not. Some are easier to use than others. Managing the sales department may be among the easiest, because you have sales numbers to use, sales vs. quota, sales vs. prior period, sales of most profitable products, etc. Production departments can be monitored by the percentage of goods produced timely, labor and overhead rates, etc.
But what about your administrative functions, and in particular, accounting? OK, you eventually got your monthly P&L statement. Is that it?
Some time back we got a survey report commissioned by Airbase, an expense software management company, that attempted to create some benchmarks by asking nearly 800 US-based companies of various sizes what they do to get their accounting jobs done. The results, while not earth-shattering insights, are useful as a way to develop some metrics for your company. For the purposes of this post, I’ll focus on companies that reported a total headcount of 100 or less, representing 98% of the businesses in this country.
Here are a few highlights:
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Nearly 2/3 of these companies realized the need for improving processes by adding new systems and techniques to reduce manual operations. Does your accounting leader regularly look at the possibilities in this area? This is the best single path to improving productivity, in my view.
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Half of these companies said they need to improve their control over budgeting, meaning get them to work better for what they intended, which is to focus spending. How’s your budget process working for you? Do you even have one?
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75% of these companies don’t have a CFO, while the other 25% outsource their CFO support. For companies with less than 100 employees perhaps not having a full-time CFO to oversee their financial affairs is understandable, but not having any CFO support at all when there are many fractional CFO resources out there does not make sense to me. What’s that about anyway?
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The vast majority of these firms use QuickBooks for accounting, despite its limitations beyond basic accounting, perhaps related to the complaints about the amount of time spent in manual processes. The reality is that basic accounting software can’t handle much beyond the basics. If you manufacture anything and your books are on basic software like QuickBooks, you will either have a lot of manual processes or poor visibility into the financial side of your business.
To that, we would add one fundamental metric. Your monthly financial report should be ARTistic, that is: Accurate within reason, Relevant, meaning formatted to your needs and level of understanding, and Timely, which means you can count on it being on your desk within X workdays after the end of the prior accounting period.
These basic metrics will help you begin to measure and assess the accounting processes and productivity in your organization.