CNBC’s hit show, The Profit, provides viewers with a glimpse into some of the difficulties faced by business owners as successful investor, Marcus Lemonis, steps in to help them grow or rehabilitate their struggling businesses.
On the show, Marcus approaches each business with the same concept: Business success is about the three P’s: People, Process and Product. If a business has the right people, operates the business using the right processes, and has a strong product, then it has positioned itself to be successful.
While his concept is meant to assess a business as a whole, it can also be used to evaluate other aspects of a business as well, including its accounting.
With the New Year underway, now is an excellent time to evaluate the accounting and finance function of your business and using Marcus’ “People, Process, and Product” concept could help.
Without the right accountants, a business runs the risk that transactions are not posted timely or accurately and therefore do not produce reliable information upon which to make decisions. For that reason, it is important to have a strong accounting team; however, it is also important to ensure that those qualified accountants are being properly utilized.
In some cases, a business may employ a strong, experienced accountant and feel that their accounting department is in good hands; however, if that individual is tasked with performing basic accounting entries, as well as the more complex analysis, the business may be paying too much for the more basic processes which could be done by someone with less experience.
Alternatively, companies may have a strong staff accountant or bookkeeper who can perform most of the basic accounting processes; however, they may not be able (or qualified) to provide key financial analyses the executive team requires to analyze operations and guide business decisions.
One common issue with the businesses appearing on The Profit is their lack of accurate financial statements which Marcus uses to evaluate the business and identify any concerns. To ensure financial statements are maintained correctly, the accounting department needs to establish the appropriate processes (daily, weekly, monthly, and annually). At a minimum the accounting department should be able to close the monthly financial statements within 15 days after month end so they are relevant for executives.
Aside from the typical close process, there are also processes that need to be established relating to approving bills, making cash payments, issuing invoices, and reimbursing employees for expenses, among others. Proper approvals and oversight are critical in these processes as businesses are at risk to errors and potential employee fraud without them – regardless how large or small the organization is.
Within the accounting department, the “Products” include monthly financial statements, board/management reports, cash flow projections, and any other financial reporting or analyses used by others. Without these products from the accounting and finance departments, the executive team will not have visibility into the performance of the operations or be able to make critical decisions.
Evaluating Your Accounting Function Using the 3 P’s
Entrepreneurs and executives should periodically re-evaluate their company’s accounting and finance function (at least annually) confirming their accounting People, Processes and Products are appropriate to help manage the business.
Free Email Updates
If you liked this post, subscribe to our blog and get the newest content sent directly to your inbox.
[contact-form-7 id=”2429″ title=”Subscribe-Blog”]