What is “Lean Accounting”? It is the dedication to essential accounting purposes, while at the same time spending as little as possible on accounting functions. Its core principles include minimal resource usage, maximizing cash flow, enhanced financial analysis, and rapid reporting.
I’ve preached for years that most companies spend way too much on the accounting function and get too little in return. Lean accounting theoretically will achieve its core principles. However, the theory isn’t always clear about how to get there. Some of the books I’ve read discuss the nitty gritty of the goals and techniques, but at the same time miss the most essential ingredient. I’ll get to that later.
First, let’s discuss conditions that interfere with Lean Accounting. The primary interferences are: bottlenecks, excessive controls, physical distance, errors, inappropriate technology, meaningless measurements and reports, wait times, and work flow inefficiency. This begs the question: how did these conditions come into existence, and why do they still exist?
The answer lies in the missing essential ingredient. This ingredient is the human element because the human element addresses the question of who is responsible for the systems. Unfortunately, most companies rely on people who are not qualified. Some of these folks rose through the organization organically, while others were hired because management didn’t have the qualifications to make an effective hiring decision.
Most businesses have poor systems and reporting. The vast majority of bookkeepers lack the experience and education to be successful in the objectives of lean accounting. This is exacerbated by the fact that many CEOs do not clearly understand financial reporting. They also do not have the expertise to hire the right financial management personnel, nor to appropriately manage them.
The ultimate solution is having a well-rounded CEO whose abilities are not just limited to effectively managing operations and sales. The CEO must also be able to effectively hire and manage financial reporting personnel, understand their systems and projects, and can keep a daily read on company finances.