Business meetings – face-to-face is best
According to a post on the Gulliver blog on The Economist website, the expense of air travel, hotels and all that for business meetings is money well spent. The reason is simple, you can’t drink beer together via email. Obvious! The real issue is that face-to-face meeting accomplish so much more than email, video conferencing, phone calls or any other non-contact medium. The post is based on a Harvard Business Review by Stephen Greer, who mentions the gelling and bonding only brought about by face-to-face meeting. Once these bonds are in place, then email and phone calls can be used. My own experience makes me agree totally. I have resolved quite a lot of business problems in restaurants and bars – not by getting drunk, but by building trust in a less formal environment and getting to know the people better. Try it, but don’t go too mad! But, seriously, read the blog post, it is sound advice.
Energy efficiency delivers real returns on investment.
When I worked in a paper company, health and safety was always a big concern. The machinery used in paper making could be quite lethal in the case of an accident. Quite an amount of money was spent annually by my employer to ensure the safety of all staff, but in particular those exposed to process equipment and machinery. As an accountant, one comment made by a manager on health and safety always stuck in my mind, namely that “there is not return on investment in health and safety”. I’m not going into detail here, but I’m sure you can appreciate it may be difficult to put a financial return on health and safety expenditure.
Another hot topic in business for the past decade or so is energy efficiency. Investment in energy efficient ways of working and running a business, like health and safety, is a good thing to do and probably adds to the longer term survival of a business (and the planet!). But, unlike health and safety, for accountants the return and investment can be ascertained a lot easier. For example, a recent article in The Guardian reports that many well-known UK companies are achieving definite returns on investment. DIY company B&Q saves 12% on CO2 emissions through education of staff and monitoring energy usage; hospitality group Whitbread can save 3% on energy costs just by changing behaviour. However the article also reports that companies may be seriously underestimating the return investment. recent research at the Carbon Trust in the UK took a close look at 1,000 energy efficiency projects it has been involved with and found that companies can expect to see an internal rate of return (IRR) of 48% on average and payback within three years. In the retail sector, the research shows the average IRR from energy efficiency projects leaps to 82%. Most “normal” investment projects would be happy to see a return of about 15%.
The full Carbon Trust report can be read here.
Green your business and save money!
About a month ago, I read a piece in the New York Times about saving money by making your business greener. I’m no tree hugger, but most of the energy saving tips given by the NY Times (and many others) actually make sound business sense – as well as do something for the environment. A win win situation. The NY Times piece suggests any changes need to start at the top i.e. at the owner/manager level. I could not agree more, as it’s really all about changing behaviour, and only those is power in a business can make and support the changes.
Here’s what you can do in your business:
- I’ll sound like a real accountant here, but start with an inventory of the energy you use, the water you use and the waste you generate. This is your benchmark.
- Try to work out what you can do. Can you get staff to be more energy aware? Can you recycle (or sell) waste, can you recycle water? Can you replace paper with electronics – email invoices for example
- Track what you do and report on it. How much energy have you saved, how much less waste has been generated and so on.
Cost accounting – a revisit and some history
I read a piece in CIMA’s Insight e-zine last February, which mentioned a discussion on the CIMA website about cost accounting. It prompted me to remind myself (and you the reader) about the origins and sometimes forgotten simple basics of management accounting.
The history of cost accounting – which was the precursor to what we now broadly call management accounting – dates back to the Industrial Revolution on the 1700’s. As the steel, textile and pottery industries grew in England, economies of scale were realised. Around 1770, an economic depression occurred and many businesses failed. Those that survived were ones who had a handle on how much it cost to make their products.
The Wedgwood pottery firm is one often cited example of a successful firm of the time. At this time, firms like Wedgwood had no choice but to develop their own internal accounting systems as the accounting profession as such did not exist. Firms like Wedgwood used what were relatively advanced accounting techniques at that time, including cost control, overhead accounting, and standard costing. These techniques, although with shortcomings, helped firms to make decisions like dropping unprofitable products.
While any student, accountant or business owner might have a reasonable knowledge of these basic cost accounting techniques, I can’t help but think have some forgot the basics of cost accounting. Okay, I am writing this from an Irish perspective, but we are not the only economy where boom times seem to have led to a somewhat remiss attitude towards the basic ideas of cost accounting and cost control. Is it not interesting that firms like Wedgwood survived depressions (which were more frequent back then) by focusing on cost reporting? Of course, business nowadays is much more complex, but that doe snot mean we should forget the basics and keep costs under control. I cannot help but think about many Irish businesses who took on costs ways beyond their long term capability (e.g. high rents) who are now either struggling or gone out of business. Focusing on costs is not the only thing a businesses needs to do of course, but this very important task should not be forgotten about. So cost accounting is still very relevant in my opinion.
Cost centres – a useful tool in any business
Managing your business costs and revenues is a challenge. To survive, you have to sell enough products/services, and collect money and manage your costs. The latter can be more difficult than you think, particularly when you don’t have good breakdown of costs.
Without careful monitoring of costs, any business can find that costs can spiral out of control quite rapidly. The old saying “keep an eye on the pennies and the pounds look after themselves” is a good starting point. This does not mean you spend hours and hours monitored costs in minute details, but you should be able to get an overview of all costs at any time. One way to do this is to use cost centres in your accounting system.
What is a cost centre?
A cost centre some section/portion/unit of a business for which costs can be identified and someone is accountable for these cost. Normally, a cost centre has a budget which includes all costs traceable to the cost centre. These cost could be anything from wages to telephone to motor expenses, once they can be traced to the cost centre
In a small business there may be only one or two cost centres. Because you will be looking at small numbers of transactions, there is no need to split things up into smaller cost centres as costs can be more readily monitored against budgeted figures. However, for larger businesses, operating as a single cost centre is probably not good enough. It is also not going to be an easy task to monitor whether those responsible for cost control are doing their job effectively. A breakdown of costs down into each cost centre helps control cost of each cost centre and the business as a whole.
Identifying cost centres
Some businesses are easy to split into individual cost centres – for example, a manufacturing company with six factories, a head office and a distribution warehouse could be split into 6 individual cost centres for each factory), a head office cost centre and a separate distribution cost centre. This example portrays what I call high-level cost centres. A business may need to go into more detail to keep a tighter control of costs – for example, each manufacturing plant might make several different products, with several different machines/processes for each product. It would be possible to treat each machine or process as a costs centre in this case. This would allow the business to keep a good eye of how profitable each product process is. Sometimes too, a business might treat support activities like human resources, finance and logistics as cost centres too. There is no end to how detailed cost centres can be [i.e. they can become very low-level], but remember to be a cost centre, it must be possible to trace costs directly and someone is responsible for the costs.
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