Accurate bookkeeping isn’t only about compliance or record-keeping — it’s a powerful tool for strategic decision-making. Knowing your financial records are trustworthy fosters peace of mind within your business and strengthens trust with external stakeholders. For managers of inventory, two key ratios will also look at turnover and days. There are a few key ratios to look for from the financials of any company you might be interested in investing in. Evaluating and comparing these companies will usually involve an analysis of basic ratios that are comprehensively important for all companies as well as some more unique to the industry group itself.
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- Below, we’ll look at some of the best practices CPG companies should use to set themselves up for success.
- Examples are food, beverages, tobacco products, cosmetics, toilet paper, shampoo, cleaning supplies, and other household items.
- If you don’t know your true production costs, it’s tough to price your products right and protect your margins.
- The Consumer Packaged Goods (CPG) industry thrives on a high-octane mix of rapid sales, tight margins, and constantly moving inventory.
- Due to recent growth, the CPG-client needed to improve their accounting processes, procedures, and systems to solidify its financials and streamline month-end closes.
- A typical COA starts with balance sheet accounts (YTD assets and liabilities) and lists revenue and expense account numbers.
Given that inventory challenges are prevalent in the CPG / Food & Beverage industries, our hands-on approach includes thorough site evaluations to identify and eliminate inefficiencies. By streamlining inventory management, we help you maintain the ideal stock levels, crucial for managing perishable goods effectively. I’ve seen brands face significant penalties simply because they missed key updates to these regulations. Working with a CPG-focused accountant keeps your labeling and operational processes compliant, Legal E-Billing letting you focus on brand growth without worrying about regulatory missteps. This is another area where you can just get started – have the team meet to understand the process for managing discounts and allowances.
How Can CPG Accounting Keep Your Products Flying off the Shelves?
I’ve helped brands connect with trusted vendors that provide better rates and support long-term growth for CPG brands. Companies with low degrees of operating leverage have more agility and can shrink expenses if revenue goes down. Using this approach, COGS includes product costs and the variable costs incurred for fulfillment and operations. A poorly organized COA will prevent you from understanding how the variables of your business move together and may make detrimental decisions. Specifically, the COA lists account numbers and account descriptions grouped by account types. A typical COA starts with balance sheet accounts (YTD assets and liabilities) and lists revenue and expense account numbers.
Managing Cash Flow in a CPG Business
One of the most challenging aspects of accounting for CPG brands is managing inventory. Unlike service-based businesses, CPG https://www.bookstime.com/consumer-packaged-goods brands deal with tangible products that need to be tracked, stored, and shipped. Accurately managing inventory is critical for ensuring that you don’t run out of stock or tie up too much capital in excess inventory.
The name originates in their packaging, which traditionally is easily recognizable wrapping that consumers can quickly identify on store shelves. Your business needs a firm that can help mitigate risk and fraud by segregating duties to protect from unauthorized spend. The real value of working with a CPG-focused accountant is the ability to anticipate challenges before they become obstacles by leveraging deep industry knowledge and a network of CPG-savvy contacts. Keeping a close eye on your P&L lets you know whether you’re actually making money. If your expenses outpace your revenue, you’ll need to make changes fast. Now, you have a 20% contribution margin, which could be higher but not bad.
- For example, you might find a top-selling item has lower profit margins due to higher packaging costs.
- As such, sales returns and allowance accounts should be established and maintained to properly reflect expected sales, COGS, inventory, and accounts receivable within the period on both the P&L and Balance Sheet.
- For CPG companies, revenue recognition will be dictated by the shipping terms (i.e., FOB shipping destination or FOB shipping point).
- Our extensive network of peers, specialists, and potential suppliers help each other succeed.
- Keeping a close eye on your P&L lets you know whether you’re actually making money.
Whether your focus is on organic snacks or gourmet beverages, CJBS delivers tailored accounting, tax, and advisory solutions that align with your unique business objectives. By integrating with your team, we offer personalized strategies and insights to drive your business forward. I’ve spent years working with CPG brands, as an advisor and angel investor, and I’ve seen firsthand the transformation possible with a CPG business.
Neglecting tax obligations
This factor is a highly debated topic, and the reality is retained earnings balance sheet that if you are looking at this cost as anything else, you are mixing variables. A CPG business has five main levers where your margins can change, and your COA should be organized to make those levers obvious and apparent. The main reason I prefer to organize the COA this way is to enable effective financial analysis & forecasting. The brand thought it could revolutionize the beverage market; however, it backfired. Optimise supplier relationships, streamline contract management and track savings efficiently with our all-in-one procurement platform.