A few articles ago, we discussed about the fact that the “Double Entry bookkeeping system” has been in use for centuries in order to calculate “Profit & Loss”, but traditional Accounting and ERPs cannot be used to calculate “Profit & Loss” in Financial Analysis scenarios. However, if we manage to tweek “Accounting 101” and put it on steroids, we will have a method that will leapfrog anything that currently exists, and solve all those unsolvable problems we have mentioned. In order to do that, first we must ask ourselves the correct questions, and then we must come up with the answers to them. Here is a small starting list of some relevant questions. They are about the nature of concentrated data, or in other words, of Budgeting forecasts.
When we say that “we are expected to sell X value of goods”, what is the time dimension of the word “sell”? In most cases, we forecast sales on a monthly basis of period. However, that is not the rule. For example, supermarkets create Budget projections for sales on a weekly basis, which is the buying pattern of their main customer, which is the housewife. In other cases, we might have completely user defined periods, like periods of 37 days (example: a ship that makes the trip from port A to port B in 37 days) etc.
On which days of the period do we sell? Most companies sell from Monday to Friday. In Greece, supermarkets sell from Monday to Saturday. Hotels sell every day of the week. Theaters sell Wednesday to Sunday. And so on …..
Every day of the period, is not equal to the others. Let’s take the example of a supermarket. On Friday afternoons and on Saturdays, the check-out lines are enormous, and so are the sales volumes. On Mondays the check-out lines are tiny. On Tuesdays there’s a little more traffic, and so on. So we see that seasonality exists within the days of a period.
Stick around, as we are going to see how we are going to tweek “Accounting 101” and put it on steroids, in order to handle those challenges.