The Joy of Cost Accounting

Many small business owners and managers control their operations from a profit and loss or balance sheet perspective. This is fine for end of the year and tax purposes but doesn't help in day-to-day management of simple or complex products, projects, or services. Cost accounting is a technique where repetitive business functions are defined, the costs ascertained, and updated periodically resulting in better bidding/quoting and easier management.

Briefly, regardless of your size or type of business, there are four basic components of a cost accounting model:
1. Direct Costs. These are the labor and material components of everything a company sells. Direct labor is the work product used to build goods and services and/or the in-house work involved in warehousing, distribution, and quality control. Direct materials are the items that go into the product or service (similar to cost of goods sold.)
2. Indirect Costs. These are the labor and service costs performed by others that do not utilize the plant and labor pool of the manufacturer or service provider. For example, if a business produces castings and sends them out for machining, the labor to make the casting is direct and the cost to machine them outside is indirect.
3. Overhead Costs. Overhead is the supporting cost of producing a direct product or service. Items such as rent, heat, telephone, Internet, payroll taxes, and benefits for the direct labor components of the business are a few examples.
4. General and Administrative (G&A) Costs. These costs are generally the costs of the business over and above that which is needed to produce goods or services. Corporate and sales salaries and related costs, rent/utilities for G&A personnel, accounting/legal expenses, non-direct insurance, and the like illustrate this category.

These outlays are typically calculated for a year period, then expressed as a percentage of sales. The end result is generally a formula that breaks a dollar of sales into its direct, indirect, overhead, G&A, and profit components. This enables the manager to cost new work in such a way as to ensure that all costs of doing business, including profit, are covered in each dollar of sales quoted or proposed.

The preparation of these cost figures are more complex and time consuming than demonstrated in this quick tip, but can reap significant rewards if pursued diligently.

Picking the Bad Apple

Every employee will be faced with the reality of having an incompetent, untrustworthy or dishonest associate within the work environment. Managers are no exception, though they have more tools with which to deal with that ‘bad apple’ than most employees. Know your company’s employee manual inside out and first use the remedies provided therein to deal with the problem. Sometimes the offending person is a favorite or perceived ‘untouchable’ within the organization. In those cases, discretion is very important. If anonymous remedies exist, use them. Otherwise, consider use of high visibility opportunities to set the stage for the bad apple to ‘pick’ themselves. Care must be taken to avoid reprisal, though, so proceed with caution. Knowing the offender’s tendencies, judicious use of questioning in meetings, seminars and encounters where superiors are present, may provide the path needed to clean up the apple cart.

Formalize Policy and Procedures

Employee performance reviews, staff meetings, employee hire orientation, correcting misconduct...if your company has been operating without an Employee Manual, these activities have probably been done haphazardly, or perhaps not at all. The policy and procedures for these activities should be included in your Employee Manual.

Best Practices for Company Employee Manuals

Give the customized Employee Manual to supervisors a few days before distributing it to the rest of your staff. Supervisors should read the Manual and become familiar with its contents so they can answer their employees’ questions. Use our Memo/Cover letter for Advance Copies.

Print copies of the Memo/Cover letter for Employee Manual and the form Employee Manual Receipt and Acknowledgement to hand out with the customized Employee Manual. Distribute the Employee Manual. Encourage your employees to read the Manual thoroughly, and to ask questions about things they do not understand. Have employees sign and return the form after reading the Employee Manual.

Designate one person to maintain the master copy. We recommend you review your customized Employee Manual at least once per year to ensure that the Manual you hand out to new hires is correct. If needed, you should also update current employees on any changes.

Harassment in the Employee Manual

When they hear the term "harassment" people generally think of sexual harassment. Harassment comes in many other forms however. Harassment can be based on race, national origin, or age. You should be aware of all of the forms of harassment and state clearly in your Employee Manual that such behavior is not tolerated. The Employee Manual should state what actions will be taken if accusations of harassment are made.

Proprietary Information in the Company Policy Manual

Depending on the nature of your business, you may require employees to sign a Non-Disclosure of Confidential Information Agreement. A Non-Disclosure Agreement protects your company’s confidential information. When signing a Non-Disclosure Agreement, an employee agrees not to divulge confidential information about your company such as trade secrets, procedures, names of customers and suppliers, pricing methods and price lists, and other proprietary information.

Benefits of an Employee Manual

What is an Employee Manual?
An Employee Manual is a summary of your company’s policies and procedures. It contains information about work procedures, expected behavior, benefits, and policies that affect employment.

What are the Benefits of an Employee Manual?
Educate Your Employees About Company Procedures
When an individual joins your staff, he or she has many questions about company procedures. An Employee Manual answers common questions like "What is the vacation policy?" "What happens if I get called for jury duty?" and "How do I report inappropriate behavior?"

Protect Your Company
A comprehensive Employee Manual protects your organization. An Employee Manual describes the behavior that is expected of your company’s employees. It also describes unacceptable behavior, such as harassment or use of company equipment for personal business, and outlines the consequences of such behavior. An Employee Manual addresses issues before they become problems.

Weave Your Core Values into Company Culture
Along with outlining behavior expectations, communicate your company’s values via the Employee Manual. They provide a reference point for business practices and individual behavior. Recognizing and reflecting your values will help retain desirable employees and build a solid client base, leading to greater profitability.

Practice Good Management
A good manager treats employees consistently and fairly. A good Employee Manual lays the foundation for fair and consistent treatment. When a company’s policies and procedures are recorded and available for all employees to see, there is less chance for confusion or misunderstanding.

Perk up Your Policies

A complete compensation package makes your company more attractive to prospective employees. The Employee Manual mentions one “perk” (a privilege, gain, or profit incidental to regular salary or wages) like Tuition Reimbursement.

In conjunction with preparing your company's customized Employee Manual, take the opportunity to update and formalize your policies and procedures, as well as explore additional benefits your company may offer.

Three hot topics for today’s managers are Internet use (and abuse), harassment, and protection of proprietary information. Address these topics in your company’s Employee Manual to avoid problems before they start.

Internet Use Policy

Many workers need the Internet and e-mail to conduct their business. Similar to the way that some employees can spend too much time on personal phone calls, some employees cannot resist the urge to surf the Internet or send excessive e-mail while on the job. Your Employee Manual should include clear guidelines for appropriate Internet usage.

Employee Manual

The exercise of preparing a new Employee Manual offers a prime opportunity to evaluate the policies and procedures of your company.