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Accounting as a Strategy

Updated: Aug 24, 2022


Accounting as an Aid for Decision-Making

Having timely and complete accounting information implies an accounting effort and a series of essential tools for strategic decision-making. Below we will review which ones they are and to which departments they may be applied.


Before we begin, let's review some important and basic concepts:


Financial Information: It is obtained from basic financial statements (balance sheets, income statements, trial balances or notes, cash flows, sales or income reports, costs, expenses, etc.).


Financial Forecasting: Tools that allow us to visualize the organization's future numbers.

They are basic tools for decision-making.


1. Sales and Profit Forecasting:

The financial background is the basis and the starting point to analyze two basic questions regarding my business development:

To visualize the future clearly, we must understand the current position of income, expenses, and costs with impeccable numerical clarity. Biased, incomplete, or erroneous background data may break any financial plan or future prospect, making every decision to achieve business goals risky.


Having background data is half of what is required for reasonable analysis. The other half is knowing what to do with the data: Interpreting the numbers is vital because they allow us to analyze effects such as demand, seasonality, or supply.


2. Major Changes in Facilities or General Assets:

Timely accounting information enables clarity on the best time to make changes to assets in general.


A comprehensive analysis of the assets' status, their maintenance cost or obsolescence, and their shelf lives could help move financial forecasts in two directions: replacement or maintenance.

3. Production of New Products or Services:

The production of alternative goods and services (which may complement or even replace current goods and services) is one of the most important decisions that any manager, director, or business partner must make based on accounting information.


Analyzing inventories based on their volumes, turnover, or sales level would help determine if the current strategy is best or may be changed. For example, a marketer of personal hygiene products might opt to remove a deodorant line that does not generate the expected profits based on this analysis while simultaneously studying the possibility of producing a new cleansing facial cream with a higher chance for success.


A cost-volume-profit analysis permits a long-term analysis to establish pricing or introduction strategies. An analysis of contribution margins could even produce a competitive advantage.


Accounting is the most valuable tool for making those decisions that involve the most time and resources, which will directly affect the company over an extended period. Therefore, it is necessary to carefully study the numbers and movements that will show you the way to go when necessary.


 

At DFV Asesores Empresariales, we are here to help you in every stage of tax compliance. Contact us at 4010-1076 or info@dfvasesores.com.

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