Do you ever wonder how some businesses are able to use their accounts to help them manage and improve profitability? In this short video, I will give you an approach that will change how you think about, and how to use accounts to manage a business.
I’m Jim Cahill of AccountsPLUS. I provide CFO/FD services to Engineering and Construction companies.
You may have heard of the idea of a feedback loop, sometimes called the engineers’ feedback loop. In Lean and Business Improvement Circles it’s called PDSA which gives a better idea of what it’s about. PDSA stands for Plan Do Study Act.
When using PDSA you start by making a plan for what you want to achieve – that’s the P. Then you carry out the plan by doing something – that’s the D. On completion of your work, you study what happened – that’s the S. In studying you want to find out if you got the results you expected and if not why not. Finally, armed with the knowledge that you have gained, you act – the A. You use the information to make changes – either in your plan or in how you are executing the plan. Learn more about PDSA.
So now you can see why it’s a feedback loop and by using this in your business you learn about what’s working and what doesn’t work and you apply that knowledge.
Linking PDSA to Accounts
So how does that tie back to accounts?
At the start of a period, usually a year but it can be some other period, you create a financial plan for the period. This is your P. I have a separate article on planning or budgeting.
Then you operate the business – executing the plan – this is your D.
Next step, you get management accounts – this is the feedback from your business – and you study these. This is the S. I have another article on designing your accounts to get good information.
Were your assumptions correct? Did you get the results you expected? If not, why not? So you develop your understanding of what’s happening in your business.
Finally, you make decisions about what actions, if any, you need to take and you take those actions – your A. I also have an article on carrying out improvement projects.
In order for the above steps to work, you need to have regular and reliable management accounts. These accounts should be designed to provide you with an analysis that will help you analyze your performance.
That’s the sort of work that I do to help clients use accounts to manage business. This includes identifying what they need from their accounts and putting in place the procedures that will give the information and finally helping them analyze the results and implement the improvement strategies.
If you feel this would be of benefit to you, feel free to contact me by phone at 086 2323525 or email firstname.lastname@example.org.
I hope this was helpful and thanks for watching.