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News Releases
September 07, 2009
Management Accounting by Greg WolfAccountants have been accused of being stuffy bean counters, but my subject this month is much more exciting than that. It is management accounting, or as I like to call it, "accounting that makes a difference." Management accounting represents the linkage between accounting and management; therefore, it touches closely the pulse of management strategies, as they are lived out in a business environment.
As our young family has grown, we have been reading a number of good books aloud, and enjoying many journeys together on their pages. Last winter, we read Corrie Ten Boom's The Hiding Place. There were certainly a lot of experiences and learning that we shared in that book that meant a lot to us--but I was surprised to pick up some insights on management accounting, and I would like to relate those here.
As Christmas approached one year, Corrie's sister Betsie caught a cold, and Father felt she should not work as cashier in the family watch shop, where customers let in the cold winter air. Corrie agreed to relieve her and describes the transition from there:
And so I settled in behind Betsie's table, writing down sales and repair charges, recording cash spent for parts and supplies, and leafing through past records in growing disbelief.
But--there was no system here anywhere! No way to tell whether a bill had been paid or not, whether the price we were asking was high or low, no way in fact to tell if we were making money or losing it.
I hurried down the street to the bookseller one wintry afternoon, bought a whole new set of ledgers, and started in to impose method on madness. Many nights after the door was locked and the shutters closed, I sat on in the flickering gaslight, poring over old inventories and wholesalers' statements.
Or I would question Father. "How much did you charge Mr. Hoek for that repair work last month?"
Father would look at me blankly. "Why...ah...my dear...I can't really..."
"It was a Vacheron, Father, an old one. You had to send all the way to Switzerland for the parts and here's their bill and - "
His face lit up. "Of course, I remember! A beautiful watch, Corrie! A joy to work on. Very old, only he'd let dust get into it. A fine watch must be kept clean, my dear!"
"But how much did you charge, Father?"
I developed a system of billing and, increasingly, my columns of figures began to correspond to actual transactions. And, increasingly, I discovered that I loved it. I had always felt happy in this little shop with its tiny voices and shelves of small shining faces. But now I discovered that I liked the business side of it too, liked catalogues and stock listings, liked the whole busy, energetic world of trade.
I'll touch on a handful of relevant managerial accounting insights here.
--Not everyone has the aptitude--the interest, experience, or capacity--to work with accounting records, and that is okay. Beyond her cold, Betsie's interests were elsewhere, and Father's heart was clearly in production--watch repair. I suspect the shop increasingly thrived, and all three were happier when they found a better fit for themselves among the roles in their family business.
--Aptitude itself isn't enough without a system. Corrie built a management accounting system by purchasing some tools, applying some procedures, and then devoting her attention to "impose method on madness." Systematic procedures in accounting are vital in order to generate reporting that is accurate, timely, and relevant--accounting that makes a difference.
--I'm not sure what the original purpose of bookkeeping in the watch shop even was--whether there were tax or other regulatory objectives. But it is clear that it wasn't performing effectively in pricing or customer billings, or even in telling "if we were making money or losing it." I can only assume that there had been lapses in customer care, and probably concerns over cash flow shortfalls.
--I appreciate Father's evident deep love of watches, even with his obliviousness to business principles. He was someone who didn't have to drag himself out of bed each morning, and the human dimension with customers meant as much to him as the mechanical one. His role really wasn't management--even though he was Father! But he clearly brought "A joy to work on!" to his role.
--Once Corrie brought her aptitude to the cashier's table and created a system for her work there, something very important happened beyond simply effective record-keeping--"increasingly, I discovered that I loved it." That is, she came to love the business side of their business, as she functioned at the intersection of the accounting system and business management.
The illustration I've used here came from another century, and all the way around the world. But these few insights regarding management accounting are as relevant to agricultural producers today as they were to Corrie Ten Boom in Holland in 1939.
Editor's note: Greg Wolf is a consultant with Kennedy and Coe, LLC (www.kcoe.com) and works to help clients of the firm navigate toward better returns in all areas of their businesses. He is based in the firm's Pratt, Kan., office and can be reached at 620-672-7476.
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