How to Create a World-Class Accounting Department
The accounting department is the back office heart of a business. It takes in information from throughout the company and uses it to bring in cash from customers and pay out cash to suppliers and employees. Though it is an essential organ of a business, it tends to attract little notice from an operational perspective.
Nonetheless, there are massive differences been the efficiency and effectiveness of average accounting departments and those that operate at a world-class level. The key difference is having a lean focus on how the operation is constructed and operated.
The simplest definition of lean from the perspective of the accounting department ist o maintain the function while spending as little as possible. However, the department must meet certain objectives that are time sensitive, such as preparing financial statements, paying employees, and issuing customer invoices. These tasks must be handled within certain time constraints, which introduce bottlenecks into a department that might be operating with minimal staffing.
Consequently, we need a looser definition of the lean concept when applying it to the accounting department. Thus, we propose the following mix of characteristics for lean accounting:
- Minimal resource usage. There is certainly an overall goal of being cost-effective, but this goal is subject to the following limitations.
- Maximize cash flow. The effective management of customer billings, cash receipts, credit, and collections can have a strongly positive impact on cash flows from customers, but doing so may require additional expenditures.
- Enhanced financial analysis. The department can generate very specific financial analysis that, if acted upon, can increase company profits. Doing so calls for an investment in the cost accounting area.
- Rapid reporting. A company needs feedback on its results, and this calls for a rapid-turnaround financial reporting system, which will only be effective if it is adequately supported.
In short, the controller needs to understand that the accounting department is primarily a cost center for which cost minimization is expected, but only within the goals of maximizing inbound cash flows, providing excellent financial analysis, and issuing financial reports as rapidly as possible.
This perspective on lean accounting, courtesy of Steven Bragg, CPA, a prolific writer on accounting best practices.
by Sue Anderson - Based on 30 years of experience in continuing education for accountants. Currently program director for online CPE provider, CPE Link. Formerly with the California CPA Education Foundation managing key operational areas including marketing, program development, and distance learning.