Helping you select the right tool for your manufacturing business Unlike retailers, wholesalers and service businesses, manufacturing businesses have to produce their products from scratch. Manufacturing businesses have to source raw materials while also ensuring the production of high-quality products, resulting in several complications Manufacturing businesses should have the right accounting system in place to help keep track of various financial factors. Such as production costs of various product lines, tooling costs incurred before production and the contribution margin achieved for each type of product that is on sale. We aim to guide you in selecting the best accounting systems that manufacturing enterprises can utilize for their business growth. Which should also enable them to work effortlessly with their business accountants. Get the most suitable accounting system for your company Your business accounting system is going to support the finances of your business for the rest of its life, so it’s important to ensure that you get your hands on an optimal accounting system that ensures quality financial reporting and efficient bookkeeping. However, to ensure that you choose the best option, there are some necessary considerations to keep in mind before selecting one. Research is the key Try to figure out what other businesses of a similar nature are using or ask an expert. You can also speak to an accountant if you have little to no idea what to research about. Ensure it’s scalable You started something small intending to achieve something big in the future. Keeping that in mind, ensure that you acquire an accounting system that is going to support your business expansion in the long run. Businesses tend to jump into the use of accounting software without thinking about the long term impact. Speak to your accountants to understand the things that matter the most. Make sure it works for you You should choose accounting software that has been customized according to the needs of a manufacturing business and provides tailored services accordingly, such as helping you measure unit costs, asset turnover, production downtime, production costs, etc. Learn more about KPI’s by speaking to your accountants, if you do not have an accountant try searching for competitive Accountants in London. Aim for the cloud Cloud accounting software is the most popular and reliable option, with which manufacturing businesses can stay on top of their expenses by being granted instant access to the business accounts anywhere and at any time. It can help mitigate various costs including the IT support costs. Right accounting method Let the expertise of an accountant guide you in choosing an ideal accounting method after you have successfully chosen an accounting software to fulfill your business accounting needs. Here are some of the examples of accounting practices for your understanding: 1. Job order costing Job order costing is suitable if your business’s outflow consists of a continuous flow of various items that differ from each other and each item has a significant cost. Job costing or job order costing is generally estimated to be used for batch manufacturing. Labor hours allocation and the amount of raw material used for manufacturing are the two key components to determine job order costing. 2. Process costing Process costing is the best option for manufacturers who deal with similar and lost cost products. Like job order costing, it is also a method for allocating and gathering manufacturing costs for an individual unit of output. Process costing accounts for cost by department instead of doing it by the job. 3. Variable costing Variable costing is an accounting method that accounts for the allocation of variable costs to inventory. Though variable costs are specifically used for internal reporting purposes, it may also be used to determine the sales level and to establish the lowest price of a product. Variable costing is used in a similar manner as overhead costs but varies with the production output, that is the more you produce, the higher the cost gets. 4. Absorption costing Absorption costing is another method of accounting which accounts for the full cost of manufacturing. Other than factoring in the costs of materials and labor, it also factors in the entire manufacturing overheads to account for the complete production costs. 5. Other costing methods There are other costing methods that include the same features as the above but the structure may differ, for instance, activity-based costing, weighted average costing, standard costing, actual costing and resource consumption accounting. The best way to understand these terminologies practically is by applying these methods to your business. You can always speak to an accountant, accounting firm or a manufacturing accountant to enlighten you about these terminologies and help you select the most optimal accounting method, most efficient accounting standard and the best accounting software that can cope with these requirements. Soon you will find that one accounting system is not sufficient and you might need to utilize different tools and methods to help you manage different parts of your business. Keep track of your business data The main purpose behind employing an effective accounting system is to ensure that you get your hands on the most reliable and up to date business information. Once you have employed the right system, it is then time to extract valuable business information. Here are some of the key items to track: 1. Assets and liabilities Assets and liabilities are very important for working out your business balance sheet position and the net position of your business, it is also useful in closing the financial books at the end of a given accounting period. 2. Transactions: Transactions are measured to confirm the business revenue and expenses incurred within a given accounting period, for instance, purchases, sales, loan payments, etc. After gathering the relevant data, you must remember to add the transactions in the correct ledger. 3. Inventory You must make sure that your accounting software can help you keep an eye on your inventory by providing effective reporting, it should be capable of applying various inventory methodologies such as LIFO, FIFO, Inventory tracking, cash and accrual methods, etc. Tracking your inventory can get very complicated, so it’s always better to speak to a competitive accounting firm or an accountant nearby. 4. Cash Ensure that you keep track of how much cash you have in hand and how much cash you hold in the form of assets. Manufacturing businesses have to face an exhausting amount of stress when accounting for several different types of costs and keeping their financial books in order. However, it’s always better to hire an accountant to help you stay on top of your expenses.