A guide to chart of accounts for CPG companies

Higher ratios indicate more reliance on debt, implying greater financial risk. Investors closely evaluate these ratios to determine the sustainability of small businesses. Assets (cash, inventory, receivables, equipment) hold debit balances, while liabilities (payables, payroll, credit card balances, loans) and equity (owner contributions, retained earnings) carry credit balances. In the CPG industry, deductions are adjustments made to a company’s invoiced amount due to factors such as promotional discounts, allowances, and chargebacks. Deductions can be a significant challenge for CPG companies, as they directly impact the cpg accounting bottom line. Gain the financial visibility and discipline you need to maintain a profitable, high-growth company.

The following five insights can help you avoid the traps of trade spending:

EA delivers its CPG accounting services either by augmenting the client’s existing accounting & finance staff or by outsourcing balance sheet the entire function. In either case, the engagement is led by its Connecticut-based team and executed by handpicked and intensively trained offshore accounting & finance professionals. A major component of any financial model is understanding what your expenses look like to help you predict future spending.

Need Help Managing Trade Spend?

Although your business must maintain both profitability and positive cash flow to be successful in the long term, at times, one may be more essential than the other, depending on the circumstances. It’s critical to adapt to changing circumstances as needed, particularly when there are tighter margins and increased expenses. Armed with years of data working with startups like yours, we know what it takes to make a consumer packaged goods business successful. Our solutions are geared toward streamlining decision-making in real time. Partnering with Expertise Accelerated, a firm with deep Certified Bookkeeper CPG expertise, offers substantial benefits by streamlining operations and ensuring compliance with industry-specific regulations.

• The brand thought it could revolutionize the beverage market; however, it backfired.
• Improving gross margin is crucial for small businesses looking to boost profitability and attract investors.
• The Graphite team has extensive experience working with CPG startups, and we’re here to help you build a financial model that drives your business decisions and is VC-ready.
• Understanding how your raw materials’ cost impacts your business’s earnings power is important.
• That’s because not all accountants know how to correctly recognize SaaS revenue and expenses.

Cash Flow Management

I’d help you develop a cash flow forecasting model that aligns your production schedule with expected receivables, making sure you’re in a strong financial position throughout the process. We could also explore alternative financing options such as invoice factoring or lines of credit, giving you quick access to cash to cover operational costs without slowing growth. In CPG, your cost of goods sold isn’t just an accounting line — it’s a constantly shifting target.

Understanding CPG Finance: The Importance of Managing Deductions

These characteristics are meant to help leaders forge a clear view of the long-term strategy for their company against which they can execute in the coming years. Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning.

• Whether you’re planning to pass it to the next generation, sell to your employees, or transition to new owners, we help you create and execute a plan that honors your life’s work.
• Fast growing CPG companies should have specialized accounting help to deal with complex issues related to inventory, BOMs, gross vs net revenues and more.
• Eliminating unnecessary expenses helps you optimize expenditures, and maximizing profits boosts your net income.
• It’s also a tool that your startup uses to make strategic decisions and plan for what’s to come, ultimately determining the future of your startup.
• Trade spending that should be recorded against revenue includes anything that reduces the price of the product, such as discounts, rebates, slotting fees, free products, deals, and coupons.
• In this article, we will explore these mistakes and emphasize the importance of accurate and timely accounting.

However, because of production constraints, you are unable to fulfill the whole order. Shorting the distributor PO during a deal period will result in an audit deduction in one to two years for the difference you could not fulfill. To help build appropriate insight on spending expectations, create a framework of trade deals, promotional calendars and forecasting models, and share it across the organization. Encourage collaboration by clearly identifying and explaining each cross-functional department’s role in the success of the business and explain why it matters. In order to spend wisely, you need to be able to anticipate deductions coming in from every possible avenue, from the deals made by sales reps and brokers to deductions taken for prior-year events. When you’re the CEO of a shiny new startup, you’ve got one question on your mind…