FINANCIAL REPORTING FOR THE GROWING MANUFACTURER

Data is the life-blood of a well-run business. Yet, the food manufacturer often lacks what he or she needs. What reports would you really like to have?  Would it help you make decisions if you knew in real time what each item coming off the line actually costs to make?  Would the decisions about which product to make and sell be easier to make if you knew selling costs by item?  Would the make-or-buy decisions of the product lines in your portfolio be easier to make if you could compare the total cost, including manufacturing overhead, payroll taxes and freight-in be easier and more confident decisions?  Do you receive reports that seem to show inaccurately low Costs-of-Goods-Sold and surprisingly high Overhead and Fixed Costs?  How can you make confident decisions about where to invest time, money and energy in those situations?  How can you explain to a prospective banker how you will repay those needed funds without the real data?

It is ironic that we consulting CFO’s continually see companies investing in what should be sophisticated IT equipment and paying precious overhead dollars to good and true accounting personnel but still find themselves without the information they need to run their businesses.  How can this be?

The answer: companies are doing a great job of operating their existing financial systems for the purposes they were set up to provide but they were not set up to provide the data needed to run the company.  This comes from a  misunderstanding of financial reporting systems: while tax reporting and profit and loss reporting is imperative for a company to meet the basic needs of financial legitimacy, there is much more that financial reporting can do with some important, and affordable, tweaking of the initial installation.

If the data needed for tax reporting and for overall profit and loss reporting is the same needed for operational reporting and planning, why is it not being provided?  Because the very much needed and generally exceptionally high quality financial professionals who are brought in at the early stages of a company  provide only one half of the needed financial services.  Tax and audit accountants, the CPA’s, are vital for compliance work and are almost always brought in early.  The other side of financial management, the Consulting CFO’s and Management Accountants, however, are considered  either a luxury or a challenge for the typical sales and/or production-oriented CEO to understand.

Interestingly, many assignments handled by CFOs2Go are referred in by our CPA friends who provide the tax returns and audits.  CPA’s (and our other major referring professionals, bankers and attorneys) know the value of a partnership with a Consulting CFO: we assure conformance with the covenants of debt financing, assist in the preparation of auditable tax and reporting documents and help management coordinate the financial team.  We also provide and set up the systems that take that same data and turn it into the operational management reporting necessary to make the decisions and supervise the operation to build profitability and growth.

These systems are often thought to be prohibitively expensive – and they can be.  Full Enterprise Resource Management systems can run in the tens of thousands of dollars to buy and install.  Yet, there are off-the-shelf systems that provide standard-costing manufacturing formulae, costs-by-item reports, automatic attribution of all elements of Costs-of-Goods-Sold to the P & L at time of sale, and all of the other big company benefits at about the same cost as a standard tax and audit system.  It is not unusual to see the all-in costs of such systems for less than $1500 per year, including upgrades and technical support.  The reasonable costs of set up and monthly software payments are generally covered by the substantial reductions in accounting and other overhead costs. Thus, the benefits of improved reporting and decision-making roll to your bottom line.

The Consulting CFOs in the Manufacturing and the Food & Beverage Practice Groups work in partnership with your existing tax, audit, legal and banking professionals.  Ask your CPA, banker or lawyer if your company is ready for the improvements that will come from the work of CFOs2GO.