Targeting the Bottom Line

by James Lindell, CPA, MBA
Pursuit, November 2006

Can you describe the current health of your business using three words or less? It’s difficult, isn’t it? Most CPAs describe their organizations using generic terms that are not useful in managing an increase or decrease in enterprise value. Tools are available, however, to help financial professionals measure, communicate, and predict their organization’s financial future.

Many CPAs get so wrapped up in day-to-day functions that they fail to see the big picture. Ironically, many of these individuals claim to be “big picture oriented,” yet their efforts focus on minutiae. These professionals would do well to investigate where company value is really created.

Establishing the determinants of value will enable the CPA to drill down into the areas that affect profitability. One simple ratio, the Z-Score, which is commonly used, should be underscored. By understanding this ratio’s significance in the overall health of the organization, many problems can be avoided. The implementation of working capital best practices can also be used to improve the overall health of the organization.

Understanding where a company ranks among its peers is helpful. However, company performance can be difficult to evaluate if there are no benchmarks for comparison purposes. There are reliable and inexpensive resources to help your company or client with benchmarking. These sources, including The Almanac of Business and Industrial Financial Ratios can be leveraged to improve the profitability of the company.

If your company has numerous employees, multiple work shifts, product mix issues, varied distribution routes, and alternative raw material options, you are faced with some daunting options. Each has a different impact on costs and profits. How well does your company make decisions related to each area? MS-Solver, which is already owned by most companies, can be used to aid in this optimization process.

Lean accounting and waste recognition are also vital to the health of your business. Understanding where waste occurs and how this affects
profitability is essential to improving the bottom line. There are ways to consider lean operations from both the manufacturing and office perspective.

Learn how to measure, forecast, and describe organizational resources and liabilities. This will go a long way to fine-tuning processes, identifying waste, setting realistic goals and maximizing your profits.

“The course content is relevant, easy to understand, and easy to apply in a real world setting.”
– Ryan M. Shultz, CPA
Leo Kob Co., Inc.