Off the Cuff: Issues in Industry Specific Accounting – Part 1

July 6, 2009

By Mark L. Venit, MBA, Contributing Writer

I have worked with more than 600 industry companies as a management consultant and been involved in the sale or merger of scores of companies. In that time, I have done many industry-specific business appraisals, and have met and worked with hundred of accountants. I can conclude there are two major types of accountants when it comes to counseling the owners of apparel decorating firms —  “mechanics” and “consultants.” Which type of accountant do you have?

Type 1.) Mechanics or Bean Counters: This professional does bean counting essentially to deliver bottom-line conclusions to the owner(s). They also make determinations and recommendations about which taxes to pay to whom, advising management on how to minimize taxation wherever possible.

Type 2.) Consultative Accountants: They do all the above, but also help management develop effective metrics and tools with which to make better decisions about sales, payroll, production, capital investments and other aspects of running a company.

Both types charge the same fees. Which type of accountant do you have? Which one do you wish you had? 

Oftentimes management doesn’t know the questions to ask their accountants and, unfortunately, in 30 years I have yet to meet an accountant with enough industry-specific background or experience to make recommendations about key issues in apparel graphics firms — especially regarding high-volume operations. If you’re unhappy with the level of service and commitment from your accountant/firm, it’s time to find a new accountant.

My industry experience leads me to advise against engaging big firms with fancy offices and even fancier fee structures. Smaller practices, where the principals are still doing work in the field, will get you more bang for your buck and offer more specific involvement and cogent advice. I also lean to engaging younger accountants, who aren’t yet jaded about their professional responsibilities. This isn’t a rule, just a generalized personal observation.

Perspectives
Accountants’ perspectives and philosophies vary about how to keep score, and the wide mix of company types and differences in configurations from one apparel decorating firm to another compounds the differences. Some accountants view industry firms as quasi-manufacturing in nature, while others use models from retailing, wholesaling, value-added processing, or service companies to develop their clients’ general ledger accounts. Apparel decorator shops have elements of some or all these business types. But keeping score for screen printing and an embroidery production operation is, to most accountants, much the same as developing general ledgers for any type of business — from global electronic firms to lemonade stands. 

Keeping score between doing contract work and selling a finished product, however, entails considerably more sophisticated accounting detail if management is to see which parts of their operations are making money — or at least making progress — and where further capital investment is warranted or should be curtailed.

Software
The brand of accounting and management software you use creates yet another issue as to your ability to keep score and to what degree of precision. The most prevalent accounting program used overwhelmingly throughout the industry is Intuit QuickBooks, which works well as a basic accounting system for most industry firms.

But a key question here is whether you want an accounting package that works for all businesses or one engineered specifically for your type of business. Full disclosure: I’m the chairman and co-founder of Shopworks Software, the industry’s oldest and largest business software vendor.

To compare various industry-specific software, I recommend a white paper on the subject authored by my partner Jay Malanga. Yes, it compares our product to QuickBooks, but its main value is in helping you to determine when you’ve outgrown QuickBooks and need to consider purchasing higher-level versions of it or investigate industry-specific software.

For an overview of business software available for our industry, I’ll refer you to “Business Management Software” an article that appeared in the August 2008 edition of Impressions.  And to learn more about QuickBooks, its capabilities, levels of sophistication, and its wide array of offerings, go to quickbooks.com.

Editor’s Note: Industry-specific software company Web sites (including the author’s):
CRC Information Systems
Cyrious Software
PriceIt Software
Screentek Business Solutions
Shopworx
T-Quoter
Wilcom


General Ledger Issues
What your general ledger should include is a major issue in keeping score. There is no one-size-fits-all solution. Since I’m oriented to accounting from a marketing perspective, my counsel to clients is to track by order type (screen printed, embroidered, promoware, awards, events, etc.); and by whether you do the job in house (obliging you to further isolate production data and costing) or outsource it. Finally, you should track audience or customer type (custom, preprint, athletic, preprint/licensed, contract, events merchandising — and then whether or not the job is wholesale, on site, or direct retail (whether online or over the counter).

In Part II of this series, we’ll look at the specifics of quantifying your general ledger accounts — the terminology and scope of various product categories you produce, segregating revenues and costs between internally-produced finished products vs. outsourced products, and isolating revenues and expenses vis-à-vis the different markets and audiences you sell to.

Mark L. Venit, MBA, president of Apparel Graphics Institute, Ltd., provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. Author of several books and nearly 400 articles on management and marketing, he also serves as chairman of the board of ShopWorks Software.