Demystifying consumer packaged goods deductions: understanding, managing, and optimizing

Generally, revenue is recognized when goods are sold, but CPG normal balance companies often offer discounts, promotions, and other incentives to encourage sales, which can make revenue recognition more complex. Economic slumps often trigger flagging durable goods sales because people are more likely to hold onto their cash in times of economic uncertainty. This is especially true with consumers who own older versions of a durable good. A family may opt to squeeze a few more years from an outmoded washing machine rather than upgrade to a newer model. By contrast, sales of consumer packaged goods staples like bread, milk, and toothpaste are less affected by market fluctuations. Consumers consume or run out of these goods faster and must replace them or do without entirely.

Vividly helps you manage cash flow

If you mess this up, your cash flow can be disrupted, and your business may not be able to grow properly. Accrual accounting is the principle that financial transactions should be recorded when goods and services are provided, rather than when the payment is made or received. This practice combines current and future cash inflows and outflows to provide a more accurate representation of a company’s financial and cash flow situation. 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. You’ll have multiple partners—each with their own promotions, spend calendars, order volumes, and deductions.

• Now, you have a 20% contribution margin, which could be higher but not bad.
• You’ve likely learned running a consumer packaged goods business means jumping over a maze of financial hurdles.
• Our team can handle all your bookkeeping and accounting needs, including accounts payable and receivable, bank reconciliations, and general ledger maintenance.
• If you want to save time, reduce costs, and make data-driven decisions without having to hire additional staff or outsource to an agency, then TrewUp is the ultimate solution for your deduction management needs.
• By contrast, sales of consumer packaged goods staples like bread, milk, and toothpaste are less affected by market fluctuations.

How Vividly Helps Quinn Snacks Be More Strategic About Trade Spend

It breaks costs into direct (Cost of Goods Sold) and indirect expenses (overhead). The result after subtracting all costs from revenue is your Net Income, or bottom line. Expertise Accelerated offers high-quality, affordable offshore professionals resources that provide excellence in accounting, finance and supply chain Coffee Shop Accounting management to its valued clients. We can provide strategic financial advice and guidance to help you make informed decisions and achieve your long-term business objectives. Accurate and timely financial statements that comply with industry regulations, such as GAAP and IFRS.

• If you don’t know your true production costs, it’s tough to price your products right and protect your margins.
• The core principle of ASC 606 is that revenue should be recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer.
• I’ve spent years working with CPG brands, as an advisor and angel investor, and I’ve seen firsthand the transformation possible with a CPG business.
• Update accrual estimates based on actual business performance to reflect the most accurate financial position.
• Personnel & fixed costs are a small portion of the P & L, as we just said, so you should be looking to leverage the fixed costs as much as possible since there isn’t much to begin with.
• The main reason I prefer to organize the COA this way is to enable effective financial analysis & forecasting.

Discover a new vision for trade

Raw material costs also impact inventory management and the decision to produce and sell a new product. For example, a sales change affects accounts receivable and cash flow performance. You can use your COA to create customized reports that cpg accounting streamline analysis and decision-making.

• Overstocking can lead to increased storage costs, while understocking can lead to lost sales and reduced profitability.
• They can help you grow to new markets and increase production while managing all financial processes.
• This way, your brand can scale while maintaining a steady cash flow, even during off-peak production cycles.
• We ensure that companies remain compliant with local and international tax regulations, including sales tax and excise taxes.
• I’ve seen brands struggle to maintain profitability because they didn’t have accurate, real-time insight into their COGS.

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. 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 including better cashflow monitoring. Accrual accounting makes it easier to analyze your finances from period to period and understand your margins. You need a CPG accountant if you want to expand your CPG business or are already in the expansion phase.