Financial Series Part III: Managerial Accounting
- By Emily Behnke
On Thursday, March 4, the American Booksellers Association presented an education session dedicated to managerial accounting, hosted by ABA CFO PK Sindwani and Accounting Coordinator Ana Gonzalez.
This session was the last in a three-part financial planning series for bookstores. Booksellers can view a recording of the previous sessions and access handouts on the Education Resources page on BookWeb.org.
Here are some of the key points from the session:
- Financial statements summarize a business’ financial performance over a period of time; these include a balance sheet, profit & loss (or income) statement, and a cash flow statement.
- Balance sheets are divided into three categories: assets, which includes everything that can be turned liquid cash; liabilities, which includes current and long term lines of credit and loans; and equity.
Profit & loss statements show how profitable a business is over a certain period of time. It can be solved through a simple equation: Revenue - Expenses = Profit or Loss. Other important equations include:
- COGS (Costs of Goods Sold) = Beginning Inventory + Purchases - Ending Inventory, which calculates the amount paid for inventory over a select time period.
- Sales - COGS = Gross Margin, which calculates a business’ net sales revenue minus the cost of goods sold.
- The cash flow statement is considered to be the most important of the statements, as it shows where money is being spent and what is bringing in money. But keep in mind that all three are essential to getting a full picture of how a business is performing.
- These statements should be reviewed on a regular basis, as they can evaluate a business’s general health. Watch Sindwani analyze examples of these three statements at 14:00.
During an extensive Q&A, Sindwani and Gonzalez fielded questions from individual stores. Here are some takeaways:
- Net profit is profit before income tax, which is different for different types of businesses. The bottom line is earnings after taxes.
Businesses might not have the time or the ability to calculate all three statements regularly. Sindwani said that booksellers should consider focusing on the following:
- Look at inventory turnover numbers and sales per square feet, as these help ensure that a business is thriving.
- Sales per employee is also a good number to regularly check. Sindwani recommended that employers take a look at their payroll and sales information to determine if they have the correct number of employees on staff.
- If booksellers are looking to calculate their cost of goods sold (COGS), their POS system may calculate that each month. If booksellers are receiving and returning properly and keeping track of invoices, the number should be fairly accurate.
ABA plans to open submission for the ABACUS financial survey, which offers a participating stores a report of personalized benchmarking data, in April. Learn more about ABACUS here, and watch for more details to come in BTW.