How Can CPG Accounting Keep Your Products Flying off the Shelves?
In the 1980s, Coca-Cola faced one of its biggest challenges. They decided to introduce “New Coke,” a newer version of its classic. The brand thought it could revolutionize the beverage market; however, it backfired.
While the consumers weren’t happy, Coca-Cola’s accounting team managed the new product’s impact on their balance sheet pretty well.
The New Coke is a case study of two things: If ain’t broke, don’t fix it, and CPG accounting is essential to keep the products flying off the shelves.
Accounting can make or break your business if you are a CPG business owner. So, in this guide, we’ll talk about CPG accounting and how it can grow your business.
What is CPG Accounting?
CPG, aka Consumer Packaged Goods, includes products consumers use daily, such as food products, clothing, beauty items, and so on. The sector is one of the largest in North America and contributes to $2 trillion in the US alone.
In a CPG business, you have to track tangible products and store and sell them. Profit margins are thin in such a business model, and consumer preferences change faster than TikTok trends.
So, CPG accounting is all about tracking product costs, managing inventory, and making sure all financials are in order. You can think of CPG accounting as a roadmap that can help you track production and distribution costs. They can track the cost of goods sold (COGS), manage accounts receivable, and prepare balance sheets.
Accounting Challenges in the CPG Business
If you are a CPG business owner, sometimes you feel like you’re juggling on a unicycle. You have to keep track of product costs and manage inventory, and the accounting challenges can stack up. Let’s look at a few challenges a CPG business faces in detail.
Managing Inventory
For any business, managing inventory isn’t just a number on a spreadsheet, and this is especially true for CPG businesses. You have to keep track of consumer demands, production, and seasonal patterns. If you don’t manage your inventory properly, it can lead to inaccurate financial data. For instance, you are overstocked one month, and you are in low inventory the next.
Tracking Costs
Let’s say you are running a bottled water company. You have to deal with thousands of units at a time. There are packaging costs, shipping costs, and even marketing costs. If you don’t keep track of all these costs, how can you ensure the right pricing strategies?
If you are struggling with product costs, there’s an interesting guide on HubSpot. You can check that out.
Managing Cash Flow
In the CPG business, revenue can’t be recognized when the product leaves the warehouse. Certain processes, such as shipping, returns, and accounts receivables, must be completed before revenue can be calculated. If you mess this up, your cash flow can be disrupted, and your business may not be able to grow properly.
According to SCORE, 82% of small businesses fail because of cash flow. So, you see how everything is related.
Financial Reporting
Put on your investor hat and think: Would you invest in a company if you found its financial reporting inaccurate?
Financial reporting is necessary for any business, especially when the business has taken a loan or sought investment. The lenders and investors want correct revenue figures, sound financial projections, and a clean balance sheet. Without this, you won’t get a business loan or an investment.
And it’s not just about loans or investments; you have to keep financial records accurate for tax purposes.
How can CPG Accounting Help?
Creating the next liquid death is only one aspect, and the business is all about keeping it profitable. That’s when CPG accounting can help. Let’s break it down further.
Better Cost Control
Every penny counts, so you need to accurately track product costs, including raw materials, production, and packaging costs. You can price your products more competitively once you have tighter control of your expenses.
Costco is a good example of this. They are a business, and they are making money, but how do they offer goods at lower prices? The reason is that they buy in bulk and reduce packaging costs. They know their overall costs, so they can make profits while keeping the costs lower than others. And it’s been a win-win for Costco and its consumers.
The question becomes, how do you come up with the right pricing?
To tackle this problem, you need good accounting software or a professional service. We have a detailed guide on the 5 best accounting software for cleaning businesses. Don’t get scared by the word “cleaning,” as the software is useful for any business.
Optimized Cash Flow
As we mentioned above, many businesses fail due to cash flow problems. With the proper CPG accounting, you make sure there’s a positive cash flow, get a clear picture of revenue and expenses, and can easily project future earnings. So, even if business goes slow in some months, you get an idea of how much you can make.
Stronger Inventory Management
Do you know Walmart uses a just-in-time inventory system? This ensures that products are restocked only when needed, minimizing storage costs.
Hiring a CPG accountant ensures that you are building a stronger inventory. They help predict demand, reduce waste, cut costs, and improve efficiency. This way, like Walmart, you can keep the products on shelves without overburdening your resources.
Sustained Growth
You need a CPG accountant if you want to expand your CPG business or are already in the expansion phase. They can help you grow to new markets and increase production while managing all financial processes. They also ensure tax regulations and compliance if you want to do business abroad.
Improved Decision Making
When looking into the data presented by a CPG accountant, you can make informed decisions rather than guesswork. If you want to scale your business, you have financial data, and you can decide accordingly. Having strong financial reporting is key to running and growing a business.
Final Thoughts
CPG accounting isn’t just about crunching numbers; it’s the engine that keeps your business going. As we have seen, the most successful CPG businesses don’t have the best products; they have the best financial processes.
Without the right accounting systems in place, even the most popular products can hit a wall, as we have seen in the case of Coca-Cola. When you implement strong accounting practices, your products fly off the shelves and have sustained growth.
If you want to take the guesswork out of your CPG business, partnering with Tangent Consulting can save you the headache of running a business. Our services can steer your ship into the complex sea of costs and take you to the growth land.
