Overview:
The client has been marketing, producing, selling, and distributing over fifteen hundred products spanning over eleven distinct company divisions. The organization’s financial reporting was never modified from a summarized set of financial statements, since the Company had been maintaining steady and/or growing profits over the last several years. Upon hiring a new Chief Operational Officer, he suspected that certain divisions appeared to be more profitable than others on the surface; however he did not have the reporting structure in place to validate his assumptions.

Although the Company was doing well as a whole, it had no idea which product lines were the most profitable, or just as importantly, which product lines continued to lose money year over year. Additionally, it had no methodology for allocating expenses and overhead to each of the divisions on a basis which made sense. Its computerized financial statements were available at the summary level, but not on a divisional level.

Comprehensive Business Consulting & Training Corp. (CBCTC) was contracted to perform an assessment, report findings and recommendations, and develop a comprehensive reporting structure to assist Management in being able to continue to grow the business and to place its resources in areas with the most growth/profit potential.

Approach:
CBCTC revised the Company’s chart of accounts and mapped the old accounts to new, more specific accounts. CBCTC set up a repeatable, sustainable process for correctly reporting direct costs to the proper divisions in order to capture revenue, cost of goods sold, and major expense categories. We also devised an allocation strategy to spread the expenses over the appropriate segments without defaulting to “% of sales”. Specifications for divisional reports (current, year over year, period over period) were developed and tested for accuracy and completeness. CBCTC then trained all accounting and operational staff on their roles and responsibilities and how they fit into the overall process.

Result:
Divisional reporting allowed the managers to make operational decisions which impacted the short-term and long-term future of the Company in real-time. It also enabled them to evaluate overall performance in regards to how Company resources were allocated across the various segments. In the case of CBCTC’s client, the majority of the resources, both internal and external to the organization, were allocated to the division sustaining significant losses year over year. By reallocating resources, such as direct and indirect labor and significant funds earmarked for sales and marketing efforts, the Company was able to considerably increase its overall profitability, and subsequently its cash flow, without incurring additional expenses. Also, by evaluating the pricing and cost structure of the segment sustaining material, repeatable losses, they were now able to make decisions to improve its performance as well.