Balancing cost-cutting and reporting quality in finance. Can you find the right equilibrium?

Get better pricing from other vendors in your supply chain. Negotiate payment terms and track them. Look for cheaper merchant fees. Don’t make knee jerk decisions!

One way of striking the right balance here is focusing on high-priority reports and KPI metrics that drive value. You'll first need to establish a framework for identifying which reports are critical to internal/external stakeholders. From here you can focus the majority of your efforts on streamlining these reports for downstream consumption and minimizing report errors in them. This will convert hours away from low-priority initiatives without sacrificing high-visibility assets.

One thing I have found helpful as a manufacturing cost accountant starting at a new company is reviewing gross margin against gross profit. If there is a large variance between the two (more than 3-5%), that is a good sign that activity and utilization rates need to be analyzed and updated. In some cases, the income statement needs to be restructured (e.g., classifying a portion of rent, utilities, and maintenance expenses for the shop floor from G&A to COGS). It’s best to restructure the income statement before recalculating activity rates. In short, tracking the variance between gross margin and gross profit on a monthly basis is a great way to see at a glance if there is a discrepancy in COGS expenses or revenue.

Effective cost analysis is indeed vital for maintaining financial prudence, as it allows businesses to scrutinize expenses and identify potential savings. A thorough review of operational costs, overheads, and capital expenditures can reveal inefficiencies and opportunities for resource optimization. Adopting a zero-based budgeting approach, where each expense must be justified anew, encourages a disciplined allocation of resources and eliminates unnecessary costs. However, it is crucial to balance cost-cutting measures with the need to maintain adequate resources for accurate financial reporting, as this ensures the integrity and reliability of financial statements.

Zero-based budgeting in my opinion is an approach which requires the most education to budget stakeholders, before taking such a drastic approach, I would start by increasing budget & reporting accountability across departments through suitable KPIs tied to their performance related discretionary. It is important to realise that you may not understand the strategic importance of certain costs, and therefore, it is vital to work closely with all department heads to understand their purpose. Too often I have seen draconian company wide % cost or resource cutting approaches which will stunt future growth and create a poor culture. Often it's a kneejerk reaction to a loss of a business, often it is not the answer when times get tough.

Your analysis on balancing cost-cutting and maintaining reporting quality highlights a critical aspect of financial management. Scrutinizing expenses and adopting zero-based budgeting can optimize resources, but it's essential to ensure these measures don't compromise the quality of financial reporting. Striking the right balance is key to sustaining both efficiency and accuracy in financial operations.

Lean reporting focuses on streamlining the financial reporting process to reduce waste and increase efficiency. By utilizing technologies like automation and data analytics, routine tasks can be expedited, and errors minimized, leading to cost savings and more reliable reports. However, it's crucial to avoid over-simplification, which could result in losing important details. The goal is to find the balance where the reporting process remains efficient while retaining all necessary information.

To avoid oversimplifying reports, especially when sharing with non-accountants, ask your audience what they would like to see and provide a report that has a summary section, detailed section, and raw data section (excluding confidential data when applicable). I like to review new reports with my team for input before circulating them outside of the accounting department. Practice your presentations -- When doing a run-through of a presentation, you are able to refine reports and explanations. Lastly, there are times when I provide a financial analysis and do not receive feedback. When this happens, I ask my audience if the report adds value or if there is a different way they would like to see the data.

Create a direct or indirect feedback loop in reporting to ensure that, over time, you are only providing helpful and timely information. Previously within consolidated group accounts I have used embedded dynamic QR codes that contain PDF accounts for subsidiary reports. Not only does this trim the report size for executive levels that want the important facts, it is also possible to analyse over time who and how frequently people scan QR codes to establish if people even look at them. If no one uses them you have raw data to put forward a notion to remove them entirely.

Regulatory compliance is crucial for maintaining a company's reputation and avoiding penalties, making adherence to standards like GAAP or IFRS non-negotiable. While compliance involves costs, there's potential for efficiency. Staying updated on regulatory changes and training your team can streamline compliance processes, reducing costs without compromising the quality of financial reporting. This proactive approach not only ensures adherence but also enhances the overall efficiency of the compliance function.

It is worth looking at the big picture when it comes to integration of technologies into a business. If they have multi-geography based entities, or headcounts above 200 it is likely the business will have grown with "baggage", software that is legacy and either no longer used or superseded over time. You may be surprised when you add up all your individual software subscriptions which would be made redundant by a suitable ERP solution, the difference is less material that you may think. When you add in the increase in reporting efficiency and the ability to keen operational and administrative teams lean, it may be a lower cost. The latter produces greater ops margins due to increase in company wide efficiencies and freeing up resources.

Committing to technology can be a great way to boost efficiencies in the long term (even if they require a significant upfront investment). Modern cloud platforms today provide extremely intuitive and cost-effective (pay-per-use) tools to assist with financial reporting and reduce in-house managed IT infrastructure that drives up cost and complexity to maintain. These methods are also extremely scalable and flexible past the previous bounds of on-prem environments. The platform can grow with your team's finance needs whether they grow or shrink over time.

Investing in technology may appear counterintuitive during cost-cutting efforts, but it can lead to significant long-term savings. Advanced software can automate routine tasks, minimize manual errors, and provide enhanced data insights. It's essential to choose technology solutions that align with your company's size and operational complexity. Opting for scalable tools ensures they can grow with your business, enhancing reporting quality without adding unnecessary costs. This strategic investment can streamline processes and improve overall efficiency.

Considero que, una vez estructurados, aplicados y evaluados los procesos y buenas prácticas para la reducción de costos, es fundamental implementar sistemas ERP que permitan automatizar y gestionar la producción y los inventarios. La implementación es esencial, ya que el crecimiento conllevará una carga constante de errores humanos insostenible a largo plazo. Depender de bitácoras, vales y libros de Excel entorpecerá el análisis de la operación. Estos métodos deben utilizarse como auxiliares en la auditoría de la operación, producción y gestión de inventarios, no como las principales herramientas de gestión.

Your finance team is a critical asset for achieving high-quality reporting. Investing in skilled professionals and continuous training enables your team to adapt to new regulations and technologies, ensuring accuracy and strategic financial analysis. While this investment may increase payroll expenses, the long-term benefits, including enhanced reporting standards and informed decision-making, outweigh the costs. Balancing the recruitment of experienced professionals with the development of existing staff can optimize talent costs and maintain high reporting standards.

En mi experiencia, he aprendido a valorar enormemente la inversión en talento en todos los procesos clave de la operación. Contar con un buen almacenista, un comprador competente, un operador de máquina hábil, un montacarguista capacitado o un contador general experimentado es fundamental para el éxito de la empresa. Cada uno desempe?a una función crucial en la operación y en garantizar la transparencia de los procesos. La calidad y claridad de los informes financieros dependen directamente de la competencia y habilidad del personal. Por lo tanto, invertir en el desarrollo y capacitación de estos profesionales es esencial para escalar la información de manera efectiva y lograr una operación optimizada y transparente.

The most common example I’ve seen in manufacturing is tracking the utilization of direct labor as well as the efficiency of manufacturing personnel. However, marketing efficiency ratio (MER) is often overlooked especially at smaller companies. I have seen multiple companies lay off personnel as soon as utilization is down while overlooking marketing and sales expenses.

I thing a very important point missed here when we say cost analysis is... Utilizing of resources and cost contributing factors.. E.g. we know Company will try it's level best to source it's resources at competitive rates... So basically all it's competition would also do so.. But what would differentiate the company from it's competition is... How well it utilizes it's resources for which it has paid a cost.. And that should also be gauged in the cost analysis... For every 1 dollar spend how much is the company earning... Ratio in my mind would be profit or PAT / COGS... This is new but a different way to look at cost analysis.. For every dollar spent how much profit has the company made? Give it a thought!!