Utilizing Accounting Information to Make Better Business Decisions
Accounting systems capture information that can lead to more profit. Brown Smith Wallace's Ted Flom, member in charge, risk advisory services, and Tony Caleca, member in charge, audit services, spoke with Smart Business to discuss how your accountant can help your company's bottom line.
Q. What accounting missteps might lead to decreased profitability?
A. The biggest mistakes are made when organizations don't embrace the importance of timely and meaningful reporting to make informed decisions. Maintain accounting information in a way that gives management a clear picture of how different aspects of the company are doing.
Q. What accounting tools could prove most valuable to business owners?
A. The key is having an accounting system that adequately supports the critical areas of your company. Capture information at a level of detail that supports management decision-making. Define what five key metrics are critical to your success and track them daily.
Q. How can accounting help identify growth areas?
A. Accounting information can show trends that provide insight into efforts the company should focus on or de-emphasize, particularly if systems are aligned with your strategy or key growth areas. Today, companies are more focused on information that helps them better predict the future rather than understand the past, as has traditionally been the case.
Q. How does risk affect company value?
A. Entities failing to recognize the risks they face from external or internal sources and not managing them effectively can destroy value for shareholders and stakeholders. Enterprise risk management (ERM) supports value creation by enabling management to deal effectively with potential events that create uncertainty. You can use ERM to respond to those risks in a way that reduces the likelihood of downside outcomes and increases the upside.
Q. What do businesses commonly overlook that can pose problems?
A. Businesses go through the exercise of keeping accounting information, but they don't give it sufficient review. It's always healthy to ask, 'Where did this number come from?'