How to Improve Your Bottom Line with Cost Accounting

Over the years, I have been amazed at how a diverse range of business owners monitor the pulse of their business.

Some can tell their business is doing well by walking through their operations and paying attention to signals like the frequency of incoming calls, the number of incoming/outgoing trucks, the activities of their employees, or the sound of their equipment. Others constantly monitor their sales volumes and cash balances. Unfortunately, neither approach consistently provides an accurate picture of profitability.

Have you gone through this same process and found you had an unprofitable month when you thought that you should have had a profitable one?

If so, then you most likely found that your costs were higher than expected.

Or maybe you are seeing a profit but have concerns about succession planning, realizing that your successor is unable to monitor the pulse of your business the way you do. Wouldn’t you like to provide them with the tools needed to do this?

With our current economy, cost accounting, or monitoring revenue and related costs as they occur, is essential to proactively ensuring the profitability of your business.

Cost Accounting Advantages

So how do you relate revenue and costs?

Start with analyzing what it will take to produce or buy a product/service you are selling. You will then need to compile the projected costs and mark up the cost in establishing what you will charge for the product/service you are selling. Depending on your business model, you may also expand your compilation to break out costs at a departmental level.

Understanding why costs vary compared to what was actually planned
can help you save money by enabling you to take actions
that are appropriate to correct that variation in the future.

Cost accounting can also be a helpful tool in making a number of business decisions.

By assessing the actual costs versus the anticipated benefit, cost accounting can help you avoid launching a product with no real market, prevent the purchase of unnecessary goods and services, or alter your current operational model in a manner that will increase efficiency.

Automating Cost Analysis

If cost accounting and cost analysis remain a manual process for you, you may be hesitant to sacrifice a focus on operations for time spent crunching numbers. And rightfully so.

The right software can provide cost accounting for your business model. Through timing and automation, your software could also deliver cost-accounting analysis in reports as needed, assisting you in monitoring the pulse of your business while enabling the goal of improving your bottom line.

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