Keep in mind, this document is not as helpful for managing the weekly cashflow needs for your business. For example, if you put shipping and fulfillment below the cost of goods and marketing and put it into an SG&A category, you have now mixed a variable expense with fixed overhead. It will inhibit you from identifying operating leverage in the business (discussed below). But sub-par corporate accounting practices won’t only make handling your finances harder to run your company today—it will also impact your ability to grow and thrive in the future.
Deductions 101: A Comprehensive Guide to Trade Deductions for CPG Brands
And there’s even more that someone who specializes in accounting for CPG brands can do for Certified Bookkeeper you. I’d help you develop a cash flow forecasting model that aligns your production schedule with expected receivables, making sure you’re in a strong financial position throughout the process. We could also explore alternative financing options such as invoice factoring or lines of credit, giving you quick access to cash to cover operational costs without slowing growth.
Setting up strong CPG accounting foundations
- By hiring us, you also save on time and training an in-house accountant, which includes providing benefits, maintaining accounting software, and building out your infrastructure.
- It includes the accurate tracking and analysis of inventory, sales and cost of goods sold, forecasting and budgeting, cash flow management, pricing strategy, and other components necessary to maximize profitability.
- Inaccurate tracking often stems from manual processes that are prone to human error.
- Let’s use gyms and fitness centers during COVID-19 as an example — a business model with a high degree of operating leverage.
- For example, if you put shipping and fulfillment below the cost of goods and marketing and put it into an SG&A category, you have now mixed a variable expense with fixed overhead.
The problem with this accounting method for CPG companies is that it doesn’t track unpaid invoices, which makes it difficult to get a complete picture of your finances. Returns and allowances can be estimated based on historical data, industry trends, and estimates of future returns/claims. The Financial Accounting Standards Board (FASB) has issued Accounting Standards Codification (ASC) 606, which provides guidance on revenue recognition for all companies, including CPG companies. The core principle of ASC 606 is that revenue should be recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer. Generally, revenue is recognized when goods are sold, but CPG companies often offer discounts, promotions, and other incentives to encourage sales, which can make revenue recognition more complex. Creating the next liquid death is only one aspect, and the business is all about keeping it profitable.
Your Consumer Packaged Goods Accounting Expert
- It is led by well-established companies like Coca-Cola, Procter & Gamble, and L’Oréal.
- These expenses are related to discounts between the product manufacturer and the retailer that are used to impact sales to the end customer.
- Knowing your financial records are trustworthy fosters peace of mind within your business and strengthens trust with external stakeholders.
- Overall, these four activity ratios can be very important for consumer packaged goods companies.
- You’ve likely learned running a consumer packaged goods business means jumping over a maze of financial hurdles.
- You have to keep track of product costs and manage inventory, and the accounting challenges can stack up.
At CJBS we partner with you to determine best practices for your business. By staying up to date on the most recent technology, we can provide you with optimal solutions tailored to your business needs. Beyond immediate cash flow https://www.bookstime.com/consumer-packaged-goods management, our financial projections and operating budgets focus on achieving your long-term objectives. This strategic planning covers major investments in facilities and advanced equipment.
Understanding how your raw materials’ cost impacts your business’s earnings power is important. Raw material costs also impact inventory management and the decision to produce and sell a new product. You have to handle product creation, inventory purchases, retail negotiations, and much more. It’s no surprise if you put accounting best practices on the back burner while you focus on growing your business. As trade promotions are created by the sales team, the planned trade promotion accrual is generated and actualized as trade promotion deductions come in.
Use accrual accounting, not cash-basis accounting
All of that negatively impacts growth, as poor cash flow management can stifle your ability to reinvest in your business. assets = liabilities + equity Without a healthy cash flow, you won’t be able to expand your product line, invest in marketing campaigns, or take advantage of new business opportunities. We offer specialized tax planning and compliance services designed for CPG manufacturers.
- Automated tools can also handle the complex task of inventory valuation to verify the accuracy of your financial statements.
- This information takes time to set up, but once you do, it pays dividends in the long run.
- Set up a monthly review process as well to check these fees and ensure they’re recorded correctly in your financial statements.
- With the right financial connections, you can secure better financing options or lines of credit to keep operations moving smoothly without cash flow issues.
The real value lies in the ability to forecast each activity and understand spend to guide proper accruals that lead to accurate financials. Without the deep knowledge, you could be spending too much or too little or not have an awareness in a shift in these expenses. Managing business accounting for CPG brands means investing in tools that give you the data—and insights—you need to make intelligent business decisions. CPG companies can’t run effective operations without insight into their cash flow. Confido offers live accrual exhaustion, for enhanced visibility into trade promotion performance.
