Business cycles: Purchasing Sales and Reporting
The basic business cycles comprise three fundamental stages that ensure the operability, functionality, and sustainability of a business organization: Purchasing-Expenditure, Sales-Revenue, and Closing-Reporting. Each of these phases involves management processes and administrative circuits that may present control weaknesses or clear areas for improvement. Identifying these aspects and implementing corrective measures is essential to improve efficiency and ensure the best business performance.
1. Purchasing-Expenditure Cycle
This cycle covers the acquisition of goods and services necessary for the company’s functioning and operation. It includes the selection of suppliers, negotiation of conditions, approval of purchases, receipt of goods and payment of invoices.
Control Weaknesses:
– Lack of sufficient verification in the search and selection of suppliers and service providers.
– Lack of control in the approval of purchase orders, purchase budgets and expense authorizations.
– Deficient management of warehouse entries and exits. If applicable, of projects ongoing.
Solution Measures:
– Implementation of a supplier evaluation and approval process.
– Use of ERP tools to control the reasonableness of purchases-expenditures.
– In addition to assigning a specific reference to each item or project, detailing all its specifications.
– Establishment of an authorization flow with limits defined by each hierarchical level.
– Periodic audits to ensure that orders are aligned with actual business needs.
Purpose:
Optimizing this cycle allows you to reduce costs, avoid fraud and improve supplier relations, ensuring an efficient supply chain.
2. Sales-Revenue Cycle
This process includes order generation, invoicing, delivery of goods or services, invoice collection and customer follow-up.
Control Weaknesses:
– Lack of control in the invoice process and errors in sales records.
– Differences in credit terms, warranties or signing of applications by customers.
– Delays in the delivery of products or services.
– Deficiencies in reporting, updating and follow-up of accounts receivable.
– Insufficient profitability analysis by customer or product.
Solution Measures:
– Automation of invoicing and reconciliation of payments with sales.
– Establish general criteria for basic sales conditions.
– Implementation of a CRM to track customers and their orders.
– Clear credit and collection policies to reduce the risk of past due payment.
– Periodic analysis of the profitability of each product and customer to optimize commercial strategy and business results.
Purpose:
A well-structured sales cycle improves cash flow, increases customer satisfaction, and optimizes business profitability.
3. Closing-Reporting Cycle
This cycle involves gathering and analyzing financial information, closing the accounts, reporting to management, and making strategic decisions.
Control weaknesses:
– Errors in recording movements in accounting accounts.
– Accounting balances carried forward for months without reconciliation.
– Lack of integration between accounting and management tools.
– Financial reports with little detail or inconsistent data.
– Delays in the preparation of key reports for decision making.
Solution Measures:
– Implement uniform recording criteria with sufficient differentiation and detail.
– Train personnel in good accounting practices, such as correcting and purging accounting balances of customers and suppliers.
– Define an ERP development plan (including its communication with the accounting tool) with a schedule based on the company’s priorities.
– Design of reports to management with key indicators (KPIs) aligned with the information needs of business managers.
– Establish a monthly accounting closing date, on which all relevant information generated up to that moment is available and recorded for accounting purposes.
Purpose:
Improving the accuracy and timeliness of both accounting and financial information enables informed decision making, minimizing risks, and optimizing management.
Conclusion
Proper control of business cycles: purchasing, sales and reporting is fundamental for the efficiency and profitability of a company. Consequently, identifying critical points at each stage or clear axes of improvement is a first step. Then, applying corrective measures helps to improve operations, reduce financial risks and strengthen strategic decision making. Technology and automation play a key role in optimizing these processes. They also ensure that the business is better positioned to adapt to an ever-changing and competitive environment.
