Tag Archives: Costing

Blog No 48 – Best Practice Tips

Where are you at?

 Financial Year ¾’s done

As you would all be aware, we are now more than ¾’s through the current financial year. It is a busy time of year so I thought I would share my best practice timings for working on your business, rather than in it.

Best practice timings

In my view, best practice timings for working on your business are as follows:-

  1. Activity Based Costing (ABC) project covering the December quarter actual numbers to be undertaken. The work on this snap-shot costing and profitability exercise covering all products/services for the December quarter should be undertaken during the January/February/March period. The information derived from such an ABC project provides excellent profit insight and cost behaviour understandings and are your most powerful strategic tools. Being armed with such knowledge BEFORE your annual strategic planning process is invaluable. Knowing where you make and lose your money is the very most important step in formulating a strategy and should have been completed by now. Have you?
  2. Strategic Planning – Your off-site strategic planning workshop/think-tank should be undertaken during March with your management team. Identify and prioritise what your new strategic initiatives for the following 12months will be. This is done as a precursor to the preparation of the annual budget for the following financial year. This will ensure new strategies are incorporated into the budget thus creating accountability and ownership for executing such new strategies for the next financial year.
  3. Forecast full year 2017 9+3 – once your March financial numbers are completed, undertake your 9+3 forecast using 9 months of actual numbers to March and forecast the last 3months. The 9+3 forecast exercise is to be completed in April and comes up with a FY2017 full year forecast. This provides the best starting point for the baseline of your next financial year budget.
  4. Budget next financial year – combining your 9+3 forecast, strategic planning initiatives and other factors such inflation, growth etc. you will work on your budget for the next financial year during the May/June period ready for July 1st start of new fiancial year.

2nd Annual Manufacturing Survey

Our second annual manufacturing survey has closed and produced some interesting results. The personalised reports to survey respondents will be distributed shortly. Thanks to those folks for their participation.


So, those are my best practice timings of key business activities. Are you on schedule? Do you disagree with my approach?

Don’t hesitate to share your best practice views on timings with me.

Ross – Billson Advisory

Blog No 42 – History of Accounting

Welcome to 2017 and my first blog for the year.

I trust you have all had a great festive season and that the year as started off well for you, both in your professional business life and personal family life!

The first topic of the year is one close to my heart, the history of the accounting profession and what it might look like in the future in my view!

The History of Accounting

Accounting is one of the world’s oldest professions, dating back over five thousand years. Early indications were first noted in ancient Mesopotamia (an area now known as Iraq), ancient Iran and the Egyptians.

The history of accounting is by necessity naturally seen as parallel to the history of finance, business and commerce.

More recently, in the 15th century, double entry bookkeeping was described in Italy and used by the merchants of Venice. The key concepts of double entry bookkeeping being ledgers, debits and credits were described by Luca Pacioli in 1496, and still remains the basis of all current computerised accounting systems everywhere today. Pacioli was a friend and contemporary of Leonardo da Vinci and was much admired in those days, and still this day as the ‘godfather’ of bookkeeping. Even his contemporary Christopher Columbus, acknowledged the role of accounting when he took a royal accountant with him on his voyages to track his wealth accumulation.

One might argue that Pacioli would not recognise todays ‘books’ put together in a largely automated manner using computerised character recognition, bank feeds and integrated Enterprise Resource Planning (ERP) cloud based systems. The background theory going on behind the scenes is still the very same double entry bookkeeping fundamentals, so Pacioli’s concepts are still at play today!

Cost Management Accounting

In terms of Cost Management Accounting, this area of Accounting was originally driven by the industrial revolution in the 18th century and continues to evolve with the most recent development being Activity Based Costing (ABC) 20+years ago.

Next Week

In next week’s blog, we will continue looking at the accounting profession and what the future of accounting might be?

Ross – Billson Advisory

Business Blog 41 – 2016 Wrap Up!

This is my final blog for the year, and what a year it has been in what is our first full year of operation! I trust it has been a great year for you in and out of business too!


From my perspective, the business highlight for us for the year was the successful delivery of an Activity Based Costing (ABC) project for an ASX listed entity. This multi-site project identified profitability by product, customer and segment and provided insight into their business not seen before. The ability to make informed strategic and pricing decisions was the key outcome for that entity.

Reflection on 2016 blogs

It is interesting to look at the ‘read’ rates for the blogs for the year. The blog with the lowest ‘read’ rate was Blog 23 ‘The Cloud’. This is a real surprise to me as moving IT systems to the cloud is one of the biggest improvement opportunities around and I thought there would have been more engagement in the topic? Maybe folks are over the ‘cloud’ or have already addressed this in their businesses?

In terms of the most popular weekly blog, Blog 32 covering Q1 Profit and Loss Actual results was the most ‘read’. This result tells me that performance management and measurement is an important area from readers perspectives, so we will do more of that in 2017.

What is in store for 2017?

For us, we are expanding our business into the disability sector. Having recently been an exhibitor at the Melbourne Convention Centre which hosted over 500 CEO’s from the Disability sector, and also being invited to present a session on ‘Financial Sustainability’ in regional Victoria last week to disability providers, it is clear there is a need for our services in this sector, in particular our Activity Based Costing and Part-Time Virtual CFO offerings.


Our traditional target market of manufacturing will continue naturally. We will be conducting our second annual survey of manufacturers in early 2017 so please keep an eye out for that.

Festive Season

The upcoming festive season presents a time to not only to spend with family, but also reflect on our businesses. Are we happy with where our businesses are going? Does our strategy need a revisit? What can we do differently in 2017 to improve both ourselves and our businesses as a foundation for a successful life?

I wish you all the best of health and happiness over the festive season and the best of fortune for 2017.

Merry Christmas to you and yours!

Ross  – Billson Advisory

Business Blog No 37 – Costing and Profitability


Do you really know what your products and/or services actually cost?

Do you know the profitability of your products and/or services?

Can you confidently say you know where and from which customers you make or lose money?

Where do you focus your business to improve profits?

Have you ever wondered why your profits may be falling even if you are holding your gross margins?

How many companies are honestly satisfied with the data their costing and quoting systems provide?

Do you know that the core information on which your business decisions are based is your costing data? By definition without accurate costing data, your pricing and profitability analysis will also not be accurate, and hence your business strategy and underlying assumptions may be flawed?



You either need to review your existing costing systems, update them and/or undertake an Activity Based Costing (ABC) project!

Once you have accurate costings, you can then identify the profitability of products, services, customers and/or segments. You can price, quote and use the information as a core ingredient to your Strategic Planning process.

Although out of fashion, Activity Based Costing (ABC) remains a key tool for Costing purposes in my view and is as current today as it was when I did my first ABC project 20years ago. In fact, only a few months ago, we completed a successful ABC project for a listed company identifying customer, segment and product profitability across multiple sites.




If there is enough interest, I am thinking of doing a blog series on Activity Based Costing (ABC) as a foundation for business success?

Let me know if you would like such a series. Call on (03) 9847-6834 or email us directly with your views.

Ross – Billson Advisory

Business Blog No 36 – Workplace Flexibility

You may have been hearing quite a bit of reporting on the evolution of the workplace to a more flexible on-demand and freelance style lately? Publicity on this topic has been supported by statistics whereby a recent survey of ASX200 companies identified around half of these top 200 listed companies said around one-fifth, or 20%, of their workforce would be on an ‘on-demand/contract’ arrangement within 3 years (Australian Financial Review).


A recent McKinsey survey also identified that between 20-30% of working age Europeans and Americans do some form of independent work. They range from ‘free-agents’ who work independently by choice; ‘casual earners’ who by choice are looking to supplement their incomes; ‘reluctants’ who would prefer traditional employment but can’t get it; and the ‘financially strapped’ who do extra work as a matter of necessity.

The Business Perspective

Even the increasing percentage of part-time workers in the Australian manufacturing sector is an indication of the evolution of this dynamic workplace in Australia. It demonstrates how businesses can move to make their labour costs more variable and less fixed, thereby making a business such as a manufacturing enterprise more sustainable and competitive.

Full time staff are becoming more seen as ‘generalists’ with ‘specialists’ only being added only if, and when, their specialised skills are required. So a baseline of permanent full-time employees is supplemented by part-time, casual, freelance, on-demand and contract personnel.

This not only lowers the overall cost of labour for such businesses but enables them to tap into the super-specialists rather than relying on training up or making do with internal staff to do specialists tasks, which they may or may not be equipped to do. For the company, it is a win-win!

Extending this scenario a little further, the ‘flexible’ workplace is also seen a major attraction for businesses to become ‘employers-of-choice’. Workplace flexibility is seen as a key for future business success with technology being both a driver as well as an enabler of workforce flexibility. Employees are also seeking more flexibility in their lives (both inside work and outside work) and companies are working in an ever evolving 24/7 marketplaces. So, to offer a flexible work environment is a big positive to many prospective employees thereby enabling a business to be able to select from a wider range of candidates in theory.


The Individuals Perspective

It is just not businesses who are enjoying the benefits of this new flexible, mobile and on-demand workforce, individuals who work in such environments are also enjoying this new ‘portfolio careers’. These individuals may be the super specialists whose skills are in demand and so work with a variety of employers, rather than one single entity. Not only do they earn more by doing this, but they thrive on the variety of freelancing, temporary jobs and casual or part-time employment thereby deriving income from multiple sources. These ‘portfolio careerers’ may even opt for unrelated types of income or may also follow a passion that may not in itself pay enough to make a living. A seasonality factor may also be attractive to some individuals such as tax agents for instance.


So where does this lead us to?

The evolving ‘on-demand’ world we live in is clearly extending into the workplace. It is a winner for both businesses and individuals!

Pardon the pitch, but I can proudly say that Billson Advisory is an example of such a business that enables entities to tap into a part-time/Virtual CFO offering as well as specialist costing skills on a flexible and as-needs basis. Rather than having a full-time CFO on your payroll, use our ‘Virtual CFO’ or specialist Costing services on a weekly or monthly or quarterly basis or ad-hoc basis thus providing a sound foundation for business success.

Ross – Billson Advisory

Business Blog No 25 – Casuals and Redundancy

Casual hours to count towards redundancy payouts

Last week, the full bench of the Fair Work Commission resolved that periods of regular casual employment will now be counted towards redundancy entitlement calculations. The advantage to employers in ‘casualising’ their workforce is slowly being eroded away, and this latest decision is another step in that direction.

The decision means that workers who start as casuals before their positions become permanent, either full-time or part-time, will have their full length of service recognised in the calculation of their final redundancy pay out.

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An appeal by the Australian Manufacturing Workers’ Union was upheld reversing a decision made earlier in the year which allowed a ship building company to only count the period of permanent employment in the calculation of redundancy payments.

To be included in the calculation of years of continuous service, the period of ‘regular and systemic casual employment’ must be part of the period of employment from which an employee is being made redundant. There can be no break between the period of regular and systemic casual employment and the transition to permanent employment.

The decision does not apply to employees who were casuals when their employment was terminated however.

If you are in this situation, you should talk to your Industrial Relations advisor to ensure you are calculating redundancy payouts correctly.

Ross – Virtual/Part-Time CFO

Business Blog No 22 – SuperStream

SuperStream is a government initiative which details the way businesses are to pay employee superannuation contributions to superannuation funds. Businesses with 20 or more employees are already required to use the system, with small businesses with 19 or fewer employees needing to put the system in place. The original deadline for small businesses to be ‘Superstreamed’ was June 30, 2016, but the ATO are showing flexibility by extending this deadline to October 28, 2016. From my perspective, I highly recommend you cross over to the new regime as soon as possible as there are productivity and efficiency improvements to be gained.

SuperStream transmits money and information in a consistent format across the super system between employers, funds, service providers and the ATO in a single transaction, even if you deal with multiple super funds. The data is linked to the payment by a unique payment reference number.

How your business becomes SuperStream compliant is your choice. Options include using a compliant payroll system, using a super fund’s online system, using a messaging portal or using a super clearing house like the ATO’s Small Business Super Clearing House (SBSCH). For your information, the ATO’s SBSCH is a free, optional service for small business with 19 or fewer employees.

You don’t need to use SuperStream for contributions to your own self-managed super fund (SMSF) if you are an employee of your family business, or if you are a sole trader and you make personal superannuation contributions to a super fund for yourself. For these types of contributions you just keep using your previous processes.

If you need help getting SuperStream compliant, don’t hesitate to contact us on (03) 9554-3128.

Ross – Virtual/Part-Time CFO

Business Blog No 21 – Budget – It’s a Wrap!

Last week, you completed the last piece of your budget financials for the new financial year, your Cashflow Budget.

Congratulations on completing your 3 months budget creation journey! I hope you have learnt a few things along the way.

You should now have a phased Profit and Loss budget, a budget Balance Sheet and a budget Cashflow Statement.


Now that you have created these budgets for your business, you need to assign responsibility and accountability for components of the budgets to personnel in your organisation. I would suggest the following as an indicative responsibility assignment:-

Profit and Loss Budget

  • Sales Budget responsibility – Sales Manager
  • Distribution Overheads responsibility – Distribution Manager
  • Selling Overheads responsibility – Sales Manager
  • Administration Overheads responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
  • If you are a manufacturer, your manufacturing budget – including direct materials, direct labour, direct overheads and Production Overheads responsibility – Production Manager
  • If you are a distribution company, your cost of sales budget responsibility – Purchasing Manager
  • If you are a service entity, your direct cost of services responsibility – Operations Manager.

Balance Sheet Budget

  • Accounts Receivable Budget responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
  • Inventory – Raw Materials responsibility – Purchasing Manager; Work in Progress and Finished Goods responsibility – Production Manager.
  • Accounts Payable Budget responsibility – Accountant, Finance Manager or Virtual Part Time CFO


Once you have assigned responsibility for budget areas, you need to ensure the relevant personnel are accountable for their budget areas, by measuring and reporting actual numbers against the budgets every month. This will require the development of a reporting structure and comparison reports. These reports and numbers should form part of your monthly review meeting focussing on exceptions that need action, explanation or further investigation. Such reports and analysis can be prepared by the Accountant, Finance Manager or Virtual Part Time CFO to ensure independence and impartiality.


Use this week to assign responsibility for budget targets and develop a reporting and accountability structure so each month you can measure and compare the progress of your actual numbers against your budget numbers. Once you start measuring things, it is amazing how quickly improvement can actually come from the simple measuring process itself, as well as the identification of improvements opportunities.

All the best for a prosperous and successful financial year! As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we will move away from the budget process and onto some new topics to provide a sound foundation for business success.

Ross – Virtual Part-Time CFO

Business Blog No 20 – Budget CashFlow Statement

Last week, you completed a budget Balance Sheet for the next financial year.

This week, we will look at another key budget document: your budget Cashflow Statement. This is an important component of your budget because it will identify your budgeted cash movements and cash position. Knowing where you are going to be in terms of your money is critical so plans can be made to supplement cash if required, manage cash requirements and invest if surplus cash availability is your outcome.

The beauty of creating a budget Cashflow Statement in excel is that when it is properly connected to your budget Profit & Loss (P&L) and budget Balance Sheet, the numbers for the budget cashflow statement should just automatically flow through.

Refer Figure 1 below as an example of a simple fictitious budget Cashflow Statement which is linked to the budget templates presented in previous newsletters. Column A represents broad categories of your Cashflow Statement and Column B is your budget cash movements for each of those categories.

Working through each of the key cash flow items in turn as follows:-

  • Profit and Loss After Tax – refer Row 1 below – this amount is directly transferred from your budget P&L. Note this figure includes non-cash items such as depreciation. Depreciation of Fixed Assets (refer Row 2 below) needs to be added back from your budget P&L depreciation expense so as to determine Cash Inflow(Outflow) from Operation (refer Row 3 below).
  • Inventory Movements – refer Row 4 below – this is the difference between your actual closing inventory balance from prior year and the budget inventory closing balance in your balance sheet. A positive number means you are reducing inventories which effectively impacts cash favourably.
  • Receivables/Prepayments Movements – refer Row 5 below – as with the inventory above, this figure represents the difference between prior year actual closing balance and budget current year budget closing balance in your balance sheet. A positive number means you are reducing Receivables which effectively impacts cash favourably.
  • Accounts Payable Movements – refer Row 6 below – this figure represents the difference between prior year actual closing balance and budget current year budget closing balance in your balance sheet. A positive number means you are increasing Payables which effectively impacts cash favourably.
  • Non-Current Movements – refer Rows 8 and 9 below – as above, the figures represent the difference between prior year actual closing balance and budget current year budget closing balance in those balance sheet categories. A positive number means you are impacting cash favourably.
  • Fixed Assets movements – refer Rows 11 to 14 below – the figures in this section represent budgeted cash movements in your Fixed Assets such as Capital Expenditure and/or Proceeds from Sale of Assets. A check on this number is done by subtracting budget depreciation expense from closing actual Fixed Assets written-down-value and comparing it to budget closing fixed assets.
  • Shareholders Equity movements – refer Rows 15 and 16 below – this is usually zero but if owners are contributing more capital to the business, it needs to be factored into this section.
  • Manual Adjustments – refer Row 17 below – I don’t like using this section as it is a ‘plug’ to make the Cashflow Statement balance. Only use it if there are small roundings.
  • Net Cash Generated – refer Row 18 below – summing all of the above you get to a figure showing your net movement in cash. Make sure it makes sense. If it is a negative figure, do you need to revisit either your Balance Sheet or Profit and Loss statements? Do we need to curtail Capital Spending or more aggressively target customer collections?
  • Cash Funding – refer Rows 19 to 22 – picking up opening and closing budget Bank/loan balances from your Balance Sheet, you will identify how you are budgeting to fund cash shortfalls or allocate cash surpluses. The total in Row 22 should equal the value shown in Row 18.

Do you need to organise funding in advance for your business to remain solvent or have you got surplus funds that can be invested to generate a return above bank interest?

If there is a seasonality factor to your business, you should look at doing a monthly phased budget Cashflow Statement so you can identify the peaks and troughs of your cashflow needs and plan ahead for any such requirements.

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Use this week to develop your budget Cashflow Statement and hence identify budget cashflow movements in and out of your business, sources of cashflow in your business and identify future Bank/Funding requirements as part of your budget process.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Ross – Virtual CFO

Business Blog No 19 Budget – Balance Sheet

Last week, you finalised phasing your Profit and Loss (P&L) budget for the next financial year.

This week, we will look at another key budget document: your budget balance sheet. This is an important component of your budget because it will drive one of your key strategic objectives as noted in Blog 7: Cash!

Refer Figure 1 below as an example of a simple fictitious Balance Sheet where Column A represents broad categories of your Balance Sheet, Column B is your current actual balance sheet values and Column C is your budget balance sheet for the forth coming financial year.

Working through each of the key balance sheet items in turn with your current actual balance sheet and ratios as a starting point:-

  • Accounts Receivable/Debtors – refer Row 1 below – you should budget an improvement in your debtors days outstanding of at least 50% and hopefully it sits below 60days.
  • Inventory – refer Row 2 below – as with the Accounts Receivable, you should budget an improvement in your inventory days held of at least 5% and hopefully it is below 90days.
  • Accounts Payable/Creditors – refer Row 3 below – the goal is to increase the number of days; which is opposite pattern to Debtors/Inventory. It should mirror the Debtors days as a target but for budgeting purposes let’s assume you increase payable days by 5% for your budget.

As an illustration, if your Working Capital (Debtors plus Inventory less Creditors) is $100k and you improve each of Debtors, Inventory and Creditors by 5%, that equates to an extra $5k in cash to your business.

  • Fixed Assets – refer Row 5 below starting with from your closing down written value of Fixed Assets, add your additions and subtract your disposals and subtract your depreciation expense to calculate a budget Fixed Assets values.
  • Leave provisions (Annual Leave and Long Service Leave) – refer Row 6 below. Using your closing actual leave provision values and assuming that the budget is for all employees to take their 4 weeks Annual Leave, the Budget Annual Leave provision will only increase by pay rate increases. Long Service Leave is a little more difficult as the entitlement and taking of long service leave needs more detailed analysis, sometimes at an individual level.
  • Company Tax Payable/GST – refer Row 7 below. These amounts payable to the government should be estimated for budget purposes.
  • Miscellaneous Provisions/Prepayments – budgeting for these general accruals and prepayments should be fairly straight forward, use closing values as a guide to calculate these.

Summing up all of the above gives you your Funds Employed values for both actual and your budget. Refer Row 9 below. Funds employed gives you the value your net assets excluding bank/loans, of the business. The way these net assets have been funded through shareholders equity, loans and bank balances is totalled up at Row 14 below. Note that as a Balance Sheet principle, it needs to balance whereby row 9 is to equal row 14.

The Shareholders Equity section of your Balance Sheet is where your accumulated profits and capital amounts reside. Your P&L Budget Profit After Tax will transfer into this section Refer Row 10.

The ‘magic’ number/s that drops out to balance your budget balance sheet are your loan/bank balance (Rows 12 and 13 below). This will give you the picture of where the financing of your business is projected to be based on your P&L Budget and the components of your budgeted Balance Sheet.

The question/s might be, do you need to organise additional funding? Will you have excess funds available for investment? Do you need to review your capital expenditure?

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Use this week to develop your budget Balance Sheet and hence identify Bank/Funding requirements as part of your budget process.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Ross – Virtual CFO