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Ensuring Financial Success For Your Business

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination? Not quite. You can’t let your business run on autopilot and expect positive results. Any business owner knows you need to make numerous adjustments along the way. For example, there are decisions about pricing, hiring, investments, and so on.

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Richard L. Lipton CPA & Associates LLC, located in Florham Park, NJ, draws on its founder’s 10 years as a stockholder and manager of family-owned Sam’s Tire Co. in Paterson, NJ. Richard L. Lipton CPA & Associates LLC is structured to personally serve large and small clients who have a need for business consulting services, as well as accounting and tax services.

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?

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Not quite. You can’t let your business run on autopilot and expect positive results. Any business owner knows you need to make numerous adjustments along the way. For example, there are decisions about pricing, hiring, investments, and so on.

So, how do you handle the array of questions facing you? One way is through cost accounting.

Cost Accounting Helps You Make Informed Decisions

Cash Flow

Cost accounting determines and reports the various costs associated with running your business. With cost accounting, you track the cost of all your business functions — raw materials, labor, inventory and overhead, among others.

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Note: Cost accounting differs from financial accounting because it’s only used internally for decision-making. Because financial accounting is employed to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.

Cost accounting allows you to understand the following:

1. Cost behavior. For example, will the costs increase or stay the same if production of your product goes up?

2. Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market.

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3. Budgeting. You can’t create an effective budget if you don’t know the real costs of the line items.

Is It Difficult?

To monitor your company’s costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.

Fixed costs don’t fluctuate with changes in production or sales. They include:

  Rent

  Insurance

  Dues and subscriptions

  Equipment leases

  Payments on loans

  Management salaries

  Advertising

Variable costs do change with variations in service and sales. Those costs include:

  Raw materials

  Hourly wages and commissions

  Utilities

  Inventory

  Office supplies

  Packaging, mailing and shipping costs

Tip: Cost accounting is easier for smaller, less-complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company.

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If you’d like to understand the ins and outs of your business better and create sound guidance for internal decision-making, consider setting up a cost accounting system.  

 

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