How accounting helps make strategic decisions

Darryl Bachmeier
Apr 2, 2019

A correct accounting in time and form not only implies balances and financial documents with cold calculations, numbers, and figures: behind it, there is a great effort that will help us to make strategic decisions for each and every department of our company. It is, therefore, necessary to know the main aspects in which the information provided by business accounting influences to make the best resolutions in the medium and long term.

  1. Allocation of resources:

The efficient management of each of the accounts will indicate at all times the items to which we must inject resources, as well as the adequate means to achieve it. In simple terms, a thoroughly detailed bank analysis should be contrasted with the report of suppliers and creditors before preparing the payment schedule for the next period. On the other hand, the capital movements report will indicate whether it is appropriate to finance some debts with part of it, or, if possible, wait until the next absorption of financial resources to carry out said financing.

  1. Take advantage of new opportunities:

The deep analysis of the assets and liabilities of the company will indicate the financial health of the company. Therefore, a positive result translated into net profits will allow us to take advantage of opportunities to invest in new financial markets knowing exactly how much capital we will do, and the potential benefits that we will obtain.

  1. Production of new goods and services:

One of the most important strategic decisions that CEOs or senior managers can make, based on the information provided by business accounting, is the production of alternative goods and services that complement or replace the current ones. In this resolution, some factors intervene:

Inventory analysis. According to our main line of business, we will observe the behavior of the main products to measure their turnover and sales level. For example, a marketer of products for personal hygiene, based on these figures will choose to remove from the market a deodorant line that does not generate the expected profits, while at the same time studying the possibility of producing some new facial cleansing cream with enough possibilities of success.

Cost analysis - volume - utility. It is another essential report for making long-term decisions, among which are the setting of sales prices and specific strategies for each type of market. In this analysis, the contribution margins of each product are detailed, which allows us to decide in which production processes more resources will be assigned and which are already obsolete for the company’s general objectives.

  1. Sales and profits projection:

The historical data that the accounting shows are the starting point for the planning of the following productive cycle:

Revenue by product or service is the most important data for the projection of sales figures for the next fiscal cycle. In advance, we already know the demand that each one of them has in each season of the year, as well as the behavior of our leading clients. However, other factors also intervene, as explained in the next point.

Macroeconomic factors. They must be taken into account for the final result and among them are mainly the levels of inflation, interest rates and changes in tax legislation that influence our processes or commercial policies.

The combination of the above data will allow us to make an adequate projection of sales and net profits with sufficient anticipation, as long as each accounting report is updated to the most recent date.

  1. Important changes in facilities and real estate in general.

The accounting information also tells us the exact moment to make substantial changes in this aspect:

Sale, rental and acquisition of real estate. The depreciation of this type of assets and the functionality thereof will help to make the decision to lease them totally or partially or sell them in their entirety to a third party. In the same way, we will plan the acquisition of new assets that will help us meet our long-term business goals.

Maintenance of current facilities. It is very important that each and every one of the departments and production plants operates with total efficiency. For this reason, it is important to budget the general maintenance and necessary changes in them periodically, after the accounting analysis of each of these real estates.

Business accounting is the most valuable tool to make those decisions that involve the greatest amount of time and resources, which will directly affect the company over an extended period of time. Therefore, it is necessary to carefully study the figures and movements that will indicate the way forward when necessary.

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