How do Accountants Assist with Corporate Strategic Planning?
Accounting is a broad discipline that includes many functions, and a management accountant supports a company’s strategic planning activities. Accounting is known as the language of business, but the audiences to whom accountants speak include external stakeholders, like government agencies, as well as internal ones such as corporate executive officers. Since corporate leaders rarely conduct long range planning and decision making activities based on qualitative data alone, accountants who are skilled in the areas of managerial and cost accounting are frequently called upon to support the generation of strategic roadmaps, high level plans, and policies with information derived from the company’s financial data. The role of managerial accountants is so important that they are often known as strategic business partners within their organizations. Here are some of the ways that they support long term corporate planning efforts.
Setting Profitability Goals
Many senior business leaders are accountable to their investors for the profits and losses that they incur while they are at the helm of business operations. They do not leave business decisions to chance and require a great deal of information regarding the financial performance of their companies. Managerial accountants are able to collect the right type of data, analyze the data and translate it into the information that decision makers need to establish long range profitability goals. For example, these accountants have access to their companies’ financial data across the enterprise and down to the business unit level. The financial information provided to senior leaders by managerial accountants allow them to reevaluate their products’ pricing strategies and assess their agreements among their distribution channel partners to optimize profits.
Creating Acquisition Strategy
While a company’s mission and vision statements are the foundation for its operations and plans for healthy growth, it is the financial information provided by managerial accountants that support the decisions that help the company to reach its high level goals. This financial information is regularly used to create acquisition strategies. Acquisition strategies are used to identify ways to cut costs through consolidation and divestiture and to promote value creation for company investors by choosing winning business purchases. For example, many industries consist of companies that flood the market with excess inventory which drives down the prices for goods that are produced. An acquisition strategy of a company may be to purchase a competing business to penetrate a market and to eliminate excess capacity issues through the consolidation of manufacturing efforts. Before corporate executives decide to move forward on such a strategy, they would consult with managerial accountants to determine if the long term results of their actions will produce the desired performance improvements.
Supporting Risk Management and Controls
One way that businesses monitor the status and health of their activities is through the establishment of risk management processes and control mechanisms. Without the help of managerial accountants a company’s risk management functions would be largely dependent on subjective data. Corporate leaders realize that they must quantify risk management objectives to make them relevant and measurable, and the financial information provided by accountants support this function. Some types of financial information can also contribute to estimating the severity of impact to a particular business unit or to an enterprise for identified risks.
While corporate executives and key decision makers get the bulk of the credit for savvy business maneuvers that improve company performance, cut costs, or add value, it is often the financial information provided to them by their colleagues in accounting that guides their actions. Subsequently, a managerial accountant remains an important member of a corporate strategic planning team.