3 Ways Accountants Can Value Add & Create A Competitive Advantage!

The role of the accountant has evolved and value adding is crucial. What was once the ‘traditional accountant’ has now become the ‘outsourced CFO’ as businesses now turn to their accountant for strategic advice. Below outline three basic methods accountants can value add and ultimately create a competitive advantage.

1. Working Capital Management

Managing cash and the levers that optimise an organisation’s liquidity is critical to its success. The administration of these components is known as working capital management. A business without sufficient cash to be able to pay their debts will fail. Conversely a business with too much cash available will endure an opportunity cost from investments not taken up.

Finding the right balance is key. One measurement of working capital is Inventory plus Accounts Receivables less Accounts Payables. To decrease working capital, an organisation can reduce the amount of inventory it holds, reduce debtor levels, or increase trade creditor levels – ultimately increasing cash flow.

Accountants play a critical role in being able to advise what the optimal level should be and provide methods of achieving this, examples include:

  • Reorder point model – i.e. when to order inventory
  • Obtaining credit facilities – e.g. From the ATO
  • Providing key financial ratios with comparisons to industry averages – e.g. debtor days

2. Performance Reporting

Without measures to assess organisational goals, businesses will be unaware if targets are met, they will remain static, and will not find areas of improvement. Accountants can provide these measures through various means – for example:

  • Dashboard reporting – providing a visual snapshot of financial performance and KPIs
  • Financial ratios – e.g. return on investment
  • Non-financial measures – e.g. staff turnover

One valuable measurement tool is the balanced scorecard (BSC). The BSC provides a framework for developing financial and non-financial measures to monitor the achievement of an organisation’s strategic objectives.

It takes a wholistic approach and breaks down the organisation into four perspectives: financial, customer, internal process, and learning and growth.

Goals are determined for each quadrant with accompanying KPI’s used to measure performance.

3. Product Costing

Traditional costing methods allocate overhead costs to products or services based on a single organisation-wide measure.

This can spell a recipe for disaster, for example:

  • Products can be determined to cost less than they should – therefore a business might persist with the product when in fact it is not profitable
  • Products can be determined to cost more than they should – therefore a business might cease production/sales of the product when in fact it is profitable

Fortunately, todays accountant has an accurate solution – Activity-based Costing (ABC). ABC allocates overhead costs based on the amount of activity required to produce the product or service. Through the use of such techniques accountants can better position their clients to maximise wealth.

Businesses can now assess their core competencies and create competitive advantages. These value adding techniques are only a few of many available, and are necessities to obtaining success in a highly competitive world.

By Adam Jacobson

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