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Taffy is one of our all-star bookkeeping pros. She has been busy helping our manufacturing clients to clean up and make the most out of both their MRP and their Accounting systems. Some of the issues she was encountering were so frequent, we began to suspect that many other manufacturing companies could benefit from her expertise. So we asked her to write a brief article about some of the most common areas of improvement that she finds when stepping in to help manufacturers.
We hope you find it helpful.
~ Ian Bullis
With manufacturing companies struggling to make ends meet, now is the time to make sure your financials are accurate and up to date.
1) Bill Of Materials
While setting up financial systems many folks forget about their assemblies (BOM’s). Also, they end up putting the majority of what is needed in the system, but forget to add things that are important to making profit margins accurate and concise. Leaving out simple things like labor can make your margins over stated especially if you have accounted for some items in the sales price but not the assemblies. Part of setting up inventory is creating and using a simple and intuitive system for part numbers. It must be flexible enough to grow and change with your business.
If you have created assemblies and orders are coming in, builds are not being cleared in the system, this can create havoc on your inventory numbers. Following the software system that you have in place, is extremely important. If your system does not follow the flow (i.e. PO’s to receivers to bills to payments) your inventory and your pricing will not be accurate with what you are actually spending and receiving.
3) Messy Chart Of Accounts
Your chart of accounts should be clear and simple to follow. Over thinking or under thinking your chart of accounts can cause confusion in the long run. This wastes time and costs you more money. Coding to the chart of accounts with your income and expenses can be an easy thing when you have an understanding of what should be in what account. As a business owner you should never have to guess where your money is going or coming from. Again, if things are not coded properly, your profits can be over or understated.
Small businesses sometimes feel that they just don’t have time for the basic “little” accounting jobs. It is felt as if they just aren’t that important. Selling and shipping products is higher up on the priority list. Balancing the check registers is extremely important as they tell you the story of your cash flow. If your statements are not reconciled then you might just miss something that could change your bottom line.
There are so many things that can affect your bottom line. With manufacturing companies, there are so many little details that if forgotten, can hurt that bottom line even more.