Getting Started with Corporate Accounting: A CPG Guide

There are a lot of moving pieces when you start a CPG company. You have to handle product creation, inventory purchases, retail negotiations, and much more. It’s no surprise if you put accounting best practices on the back burner while you focus on growing your business.

But sub-par corporate accounting practices won’t only make handling your finances harder to run your company today—it will also impact your ability to grow and thrive in the future. Below, we’ll look at some of the best practices CPG companies should use to set themselves up for success.

1. Use accrual accounting—not cash-basis accounting

It’s tempting to start a CPG company by using cash accounting methods. It’s simple to use—you only recognize a sale when a store pays you.

The problem with this accounting method for CPG companies is that it doesn’t track unpaid invoices, which makes it difficult to get a complete picture of your finances.

Accrual accounting is a better choice for CPG companies because it recognizes revenue when you earn it and not when you’re paid. 

Accrual accounting gives you a broader picture of your real-time finances and allows you to make better decisions about sales tactics and market trends. Accrual accounting makes it easier to analyze your finances period to period and understand your cost of goods sold.

2. Data is everything—if it’s consistent

It’s hard to run a CPG company if you don’t have data. Your data will tell you everything currently happening in your business, from your most popular products to underperforming sales channels.

But getting consistent data isn’t always easy to do. When you have to pull information from multiple data sources—and then have a lot of people touching that data—it can lead to mistakes, inconsistencies, and inaccuracies, which in turn leads to poor decision-making. 

Standard procedures for collecting and entering data are crucial for CPG brands and ensure you have accurate inventory information that ensures you can meet consumer demand and robust information around market trends that help you identify new opportunities. 

Accurate and consistent information ensures accurate forecasting and helps prevent overspending. You can create a better roadmap, based on tight data sets that guide efficient growth and scaling.

To improve your standards and procedures for data collection, use professional tools instead of simple spreadsheets, and automate where possible to avoid data entry errors. Audit your accounting information regularly to ensure it’s correct.

3. Mind the cash flow

CPG companies can’t run effective operations without insight into their cash flow. Without knowing where your cash is coming from, where it’s going, and how much you have on hand at any given moment is essential for understanding other important metrics of your business, including the profitability of your products.

Tracking your past, current, and estimated future cash flow and auditing your expenses gives you crucial insights that will help you identify opportunities to cut spending that no longer makes sense and estimate future cash reserves to help you budget for future projects.

An intimate understanding of your cash flow will help you maintain enough capital to manage growth and meet consumer demand.

4. Track the trade spend like a hawk

As you get more retail partners for your brand, managing trade spend becomes more critical in your daily operations. You’ll have multiple partners—each with their own promotions, spend calendars, order volumes, and deductions.

Collecting data and analyzing it on a regular, consistent basis is the most important thing you can do to track your trade spend, including your fixed costs from your regular retail partners and your variable expenses, like one-time charges for slotting fees for new products.

Keeping a tight rein on your trade costs helps you create and allocate budgets based on hard, cold data—and the actuals from accounting— and update your forecasts and budgets to reflect the most accurate and up-to-date information.

5. Manage deductions with sound strategies

The right deduction management strategies are essential for making sound financial decisions. It’s not uncommon for some CPG companies to reach over 10% in invalid deductions.

Sound strategies for managing deductions help reduce mistakes and increase your ROI:

• Create a documented system for collecting invoices and entering data.
• Track your requirements for each trade promotion to outline what’s deductible.
• Collect data to track regular avoidable deductions (like product damage), and create plans to minimize these issues from occurring.

6. Create a chart of accounts

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A chart of accounts is a categorization of your company’s general ledger. They include your cash on hand, inventory information, equipment, accounts receivable, and other types of business transactions and assets.

This information takes time to set up, but once you do, it pays dividends in the long run. It will help you keep your business ledger organized and reduce the work necessary to make sense of your finances.

Although categorizing transactions is essential in all businesses, it’s even more vital for CPG brands. A chart of accounts is helpful for giving investors insight into your company’s overall performance and financial health to make it easier to secure funding for your business during high growth periods. 

Vividly helps you manage cash flow

Managing business accounting for CPG brands means investing in tools that give you the data—and insights—you need to make intelligent business decisions. Vividly offers tools that provide visibility into trade promotions to help you understand where your money goes and streamline and optimize trade promotions. Request a demo to see how Vividly can help your business.