Today’s business environment is competitive. Companies are constantly looking for ways to improve efficiency, reduce costs, and increase profitability. One way to achieve these goals is to implement lean accounting practices, which help businesses identify and eliminate waste in their processes.
According to a study by the Lean Enterprise Institute, a nonprofit organization focused on promoting lean thinking and continuous improvement, a staggering 85% of all effort in business is wasted. 85%! This means that only 15% of a company’s efforts actually contribute to value creation. This waste can take many forms – wasted time, wasted resources, and wasted effort. In my CFO Services practice, I work with many business owners and SMB companies trying to get to the next level with revenue and profitability, and I agree with this finding – there is so much waste, particularly in two areas: employee time, and reworking.
One of the first questions I ask in my initial business assessment process is to review the employee census and ask
“What do each of these individuals actually do?”
“What is their value to the customer? The development and creation of the product? The efficiency of the operation?
One of the largest areas of waste is time. Employees spend a lot of time on activities that don’t add value to the business. These include attending unnecessary meetings, responding to irrelevant emails, not automating processes, or engaging in non-work-related activities during work hours.
This not only decreases productivity but also can dramatically increase labor costs. To implement lean accounting principles in this situation:
- Evaluate your meetings and determine who should attend them. Can some attend only once per month? Or stay for only a portion of the meeting?
- Encourage employees to unsubscribe ruthlessly to emails they don’t need. Consider using fewer “all staff” distribution lists in favor of tighter lists that apply to specific projects.
- Train employees to welcome automation, not fear it. Be open to their input about what tasks could be handled better with improved technology, or eliminated altogether.
- Build a culture where people aren’t afraid to occasionally connect casually or do something “non-work-related” during work hours as a way to strengthen team bonds. But also have a culture that expects dedication and excellence. This isn’t accomplished as well by policing as it is by providing ways for people to feel human while at work, and celebrating wins to which everyone contributes.
Another area of waste is reworking. This is when products, services, or backroom processes are not performed correctly the first time, resulting in the need to apply additional work, resources, and time to fixing the problem. This increases costs and often decreases customer satisfaction.
Fixing issues like this is like fixing a leak in a utility closet. Cleaning up the water is not enough to solve the problem. Identify the root cause of the leak (i.e. faulty faucet) and turn off the water. Don’t address only the symptoms. Find the underlying cause and work on it, first.
For example, is the process unclear? Are steps being skipped? Standardize the procedures, and write them down. Follow the example of “pre-flight checklists” that are used in various industries. Using checklists will help your staff build muscle memory for the process, but also keep them accountable, and help get them back on track if distracted. This also helps in training new people, and teaching your current employees how to identify and prevent quality issues themselves and with their coworkers.
Lean accounting is an approach that focuses on providing accurate and timely financial information that is relevant to the decision-making process. It emphasizes the importance of waste reduction and continuous improvement, which helps businesses increase efficiency, reduce costs, and improve profitability. It should be a critical component of any business strategy, especially for small and medium-sized businesses struggling with cash flow and profitability. Put it into practice in all your business operations, and see how the bottom line, and your culture, can improve.
Contact me to help you implement lean accounting practices into your business.