Well, no actually that is not the biggest profit killer in manufacturing. Whereas you are correct in thinking that overhead does come in various forms and just when you think you have a handle on it, something else comes up. Suprisingly though, the biggest culprit is not knowing the TRUE costs of the products you are selling.
Cost Accounting, What’s That?
In a recent interview with Eric Fischer, Tax Senior Manager at BDO USA, LLP in Grand Rapids, MI, we were able to discuss various facets of accounting in manufacturing and get his input on profit killers in manufacturing. His concern for manufacturers is called “cost accounting” and he suggests that manufacturers get a better handle of the true cost of what they are selling. Without that clear understanding, it is like driving a bus with your best employees into a blizzard: you can’t see where you’re going and it’s uncertain whether you will be able to reach your goal. Cost accounting lets manufacturers better price their products.
This doesn’t mean some products can’t be priced with little or no margin. According to Fischer, “Having clear visibility of what each product costs the company to make is a must in today's competitive environment.”
All hands on deck, this is a TEAM game!
Another point Fischer made in our discussion was that business is a team game. We discussed how we all understand the importance of good employees, but building a team of outside professionals is also critical. Lawyers, accountants, marketing and tax experts can more than pay for themselves in improved performance, efficiencies, and effectiveness. They can also help keep manufacturers from making some expensive mistakes. Experts in these areas serve the management team with an outside opinion on major moves the company may be considering before initiating those moves. Getting the opinion of an outside expert can prove to be invaluable to growing a manufacturing company. Read more on 8 events when things can go wrong and why having an external professional team can help you handle the events.