Solving the Accounting Mystery
By AICC Staff
April 6, 2016
It is a few months into the new year of 2016, but it is not too late to make one more resolution—for 2016 to be the year more people in our businesses learn more about that elusive, unknown group called accounting.
To help in this endeavor, there will be several AICC-sponsored education programs in 2016 geared toward taking some of the mystery out of accounting. Many of these programs are geared to the nonaccountants in your company. Programs on accounts receivable, income statements, and balance sheets will be available, among other courses still in development.
For many, accounting is a mystery. It’s not a visible entity, like production. You just can’t see it operate like watching a flexo kick out boxes or seeing the feet per minute display on the corrugator. Some years ago, you could hear the adding machines clicking away and the paper tape growing longer with each number entered and struck to paper. Accountants’ desks were covered with 13-column green ledger paper. They would wear out erasers in a week. Paper cuts were an epidemic. Wite-Out was bought by the gallon.
Now, as machinery has evolved in production, very few old-style adding machines are still used. Now it is all done on the computer, and the only noise you may be able to hear is some light tapping on a keyboard as accountants enter information.
You may ask, “What’s in it for my position to develop a relationship with accounting? I mean, all they are is a bunch of ‘numerical historians.’ They take numbers that happened in the past and put them to paper. My group produces product today for shipment. If I did not produce it, the bean counters would have nothing to do.”
Having survived the four-year hazing of obtaining an accounting degree, let me see if I can speak to some of your questions. I am very grateful for my accounting background and education, because it has allowed me to better understand the needs of the business.
The answer to the question posed above is very simple: You will profit from a relationship with accounting because they can help you succeed in your position and can be your best friend. And I mean this more than just when it is time to hand out the payroll checks. So let’s all take some time to learn how they can help.
During my career, I have had the opportunity to be in many different roles of the business and learn valuable lessons from each position. A colleague once said to me, “All work is noble.” It was one of those comments you have to think about for a while to get the real meaning. To me, it means whatever role you have in your business, it is important—including the guy who cleans the bathroom. If you don’t think so, just let the bathroom get dirty and see what happens to productivity. It is important for all positions in the business to work together properly and contribute to the good of the business.
So it is with accounting. The accounting group takes information provided by a multitude of people, departments, and outside entities; sifts the information; and generates statements that are consistent from month to month. The business then uses this information to make decisions going forward.
It is true that accountants don’t produce a box or a physical product that is loaded on a truck and shipped out to a customer. What they do is measure—in terms of dollars—the materials and the time it takes to produce that product and ship it out. They are not on the machine at 2 o’clock in the morning; they may not be in the hottest or coldest part of the plant. However, their job is also important, as it provides a record of performance for specific areas of the business, and of the business as a whole. And again, let’s not forget about the payroll checks.
The income statement and balance sheet are perhaps the two better-known documents accountants produce. One thing I remember from my MBA classes is the answer to this question: What is the reason for a business? Seems to be a simple question, and yet there can be many answers. To make a profit, to maximize shareholder value, to generate growth for future value—all of these can be true. But the real reason for a business—and some would say the only reason for a business—is to maximize cash for the owners. The balance sheet will show the cash available.
But the income statement and balance sheet are not the only two statements generated. Plus, everyone in the business does not need to see the actual income statement and balance sheet. In compiling the data to generate the income and balance sheets, a lot of information is available that can be provided in other presentations.
For example, the income statement will show total sales for the period. From that number, one could graph out the sales by week, sales by day, or sales by salesperson. In the expense section of the statement you may see a line item for maintenance repairs. You will see a total dollar amount on the paper. What is behind that number may show a particular piece of equipment has started requiring more repairs than it had in the past. By graphing this out, you can see trends developing.
Develop Your Scorecard
Everyone in the business needs access to some form of data/feedback to assess how they are doing relative to their objectives. So, ask yourself this question: Am I getting all the information that is created or generated in my business and distributing it to people who can use it to better manage the business? A financial scorecard can provide this type information. This will be part of the educational material available this year.
Most of your supervisors and people running machines get production data. Within the vast array of data gathered, there will be numbers specific to each department, each group in the business. This data can help the supervisors better manage their department. They will need access to certain numbers from the accounting group. The ability to interpret those numbers may require some understanding of accounting.
What information is needed? Good question. The answer depends on the position and level of the employee in the company. Let’s pick on the converting group and the 38-inch flexo Joe manages. He will want to know number of orders, setups, boxes per hour, MSF per hour, and so on. All this information comes from history. Let’s not forget about looking out into the future. Can we think of some leading indicators for Joe, so we may be able to see trends as they develop, and plan as needed?
Could we look at the ways orders are entered and see any future trends that could affect the 38? Are the runs becoming longer or shorter? Let’s say salesman Bob is 100 percent responsible for the sales on the 38. Is there a relationship between the number of calls Bob makes and the dollar amount of new business Bob brings in? The potential questions are endless.
So, who has access to this data? Your scheduling and production systems will provide a lot of data. Your new best friend, the accounting department, will be able to help. Remember, they can help convert the data into dollars so they can properly be measured and allocated.
Development of a scorecard is one of those processes that will take a little time to develop and evolve. You won’t get it 100 percent right the first time. The important thing is, you will have started, and that will provide you information you need to better manage your section of the business. It will also generate additional questions that will lead you to explore ways to gather data to answer these new questions.
Value in Education
Please take some time to look over all the available educational opportunities for your group. You can find this information on the AICC’s website, www.aiccbox.org, under the Packaging University header. Then set up the training. My bet is, once the nonaccountants have been exposed to some explanations of why accountants do what they do, opportunities for greater communication and working together will occur.
After the training, ask them what the accounting entry will be for the cost of the training, and see what answer you get. The entry will be to debit education/training expense and to credit cash. Then look out a month and a year from now, and see if you find a correlation between increasing your educational budget and the resulting increase in productivity and profits.
Ryan Chappell is a business consultant for Business Connections LLC. He may be reached at firstname.lastname@example.org.