Managers with bottom-line responsibility are responsible for the financial performance of their areas of the operation. There are a number of specific elements associated with this responsibility, which is broken down into the following broad categories:
Budgeting. Budgeting is the process of establishing a financial operating and capital plan for a future fiscal year. Budgets are formulated using past history, benchmarks, knowledge of upcoming events or trends, and one’s best professional judgment.
Comparing Actual Performance to Budget. Once approved, budgets are the fiscal plan for the year. Managers are responsible for comparing actual performance to budgets on a monthly basis and intervening as necessary to achieve budget goals.
Achieving Revenues. Achieving revenue projections is one of the two primary means of meeting budgets (the other being controlling expenses). Managers are responsible for monitoring revenues and aggressively intervening when revenues fall short.
Controlling Cost of Goods Sold. Departments with retail operations must also control the cost of goods sold and investigate when these costs are out-of-line. Managers can do this by ensuring accurate monthly inventories, carefully tracking departmental transfers and adjustments, and using retail buying plans.
Controlling Payroll Costs. Payroll is the single largest expense in most operations and the most significant expense that managers must control. In order to control payroll costs, it is vital that managers have timely and accurate data regarding their departmental payroll costs. Essential to getting this data is having staff correctly follow timekeeping procedures, setting schedules to meet forecasted levels of business, and the dogged determination to track payroll expenses closely to ensure that budgets are not exceeded.
Controlling Other Expenses. Other Expenses comprise all of the other departmental operating expenses. Managers can control these expenses by carefully reviewing expenditures on a monthly basis, using some means, such as Tools to Beat Budget, to track other expenses in real time, and by periodic in-depth reviews of significant expense accounts.
Benchmarking. Benchmarking is the act of measuring operating performance. Each department head should track detailed benchmarks for his area of the operation
Pricing. The starting point for meeting revenue projections is proper pricing of products and services to ensure a sufficient markup to cover associated expenses. Pricing should be reviewed on a periodic basis to assure that budgeted margins are being maintained.
Purchasing. Some managers are responsible for purchasing materials, supplies, and inventories for their departments. Managers must be familiar with all company purchasing policies to properly fulfill these responsibilities.
Expense Coding. Managers are sometimes responsible for ensuring that invoices for all purchased items are coded to appropriate expense accounts in a timely, accurate, and consistent manner.
Inventory Management and Security. Given that high inventory levels tie up capital that might be put to better use elsewhere, managers must use common sense and good business judgment to maintain inventories at levels that balance business demands, lower pricing for bulk purchases, perishability of stock, and available warehousing space.
Inventories must be kept secured with access limited to as few individuals as possible. Storerooms must be kept neat, clean, and organized to facilitate physical inventory counts and minimize damage and spoilage.
Merchandise inventories should be purchased using Open to Buy or other retail buying plans, thereby constantly monitoring inventory levels and product mix while minimizing markdowns. All special sales of merchandise during the year should be noted and marked-down items analyzed compared to buying plans to ensure that lessons are learned from buying mistakes.
Asset Management. Managers are responsible for protecting the assets assigned to their departments and in their care. Periodic physical counts are required for assets under your control:
- Resale inventories—monthly to determine cost of goods sold.
- Supply inventories, such as linens, china, and glassware— quarterly to ensure you have sufficient stock on hand. Some consumable items, such as ware washing chemicals, cleaning supplies, and paper products should be inventoried more frequently.
- Furniture, Fixtures, and Equipment inventories—to ensure presence and accountability.
Internal Controls. Internal Controls are defined as the systems and procedures established and maintained to safeguard a business’ assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.
Internal controls, while often considered an accounting function, are actually a function of management. The ultimate responsibility for good internal controls rests squarely with managers.
Point of Sale (POS) Transactions. The initial entry for most revenue data is through point of sale systems. Managers are responsible for training their employees to correctly use the POS system and to retrain as necessary when a pattern of errors is evident in their departments.
Accounting Standards, Policies, and Procedures. Managers should be familiar with and follow all requirements of their company’s accounting standards, policies, and procedures and recommend changes as necessary.
Summary. The thoroughness and professionalism with which you meet these fiscal responsibilities will have much to do with your success as a manager. Consider which ones you currently do well and in which areas you need to improve your performance.
Ed Rehkopf, Excerpted from Leadership on the Line – The Workbook, Clarity Publications, 2009
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