Cost Accounting is Leading You Astray

How is money really made in business? Shouldn't the models we use to solve problems and understand match the reality?Is it enough to use Cost Accounting just because everyone else does. BTW, not everyone else does.

Cost accounting comes from the early years of the Industrial Revolution. Do you have endless supplies of labor, abundant cheap energy, pay by the piece, and sell to an audience that has no other choices? Obviously not. Failed 19th century models don't work today, probably didn't then, they just had a captive audience and cheap stuff. What you want is an effective flow of work, and a fast-moving flow of cash so your invested dollars can enjoy the repeater effect. You won't get that looking only at the parts. You won't even see it. You have to look holistically, using models that "model" what really happens in business.

Do you focus on the parts? Is your business separated cleanly into functions that know little about each other? What does it feel like to go from one to the other, is it fun? Is it a nice place to be? Does communication flow easily? Do you have stagnant pools of inventory, or menu choices, or products that don't move? Time to flush out your pipes and find a better model.

About the Author

Dan Strongin works with medium to small companies, helping them master the art and science of managing.