Manufacturing businesses face a unique set of financial hurdles that can complicate operations and impede growth. Unlike other industries, manufacturers must account for a complex mix of material costs, labor, and production processes—all of which can vary significantly across orders. As businesses grow, outdated or limited accounting systems – such as QuickBooks – struggle to keep up with the combined, evolving demands of production and financial management. These limitations often lead to reporting inaccuracies, compliance risks, and missed opportunities to optimize costs and profits.
In this article, we’ll explore the top challenges manufacturers face in financial management, from inventory valuation to compliance reporting. We’ll also discuss how manufacturing-specific ERP systems, like Sage Intacct, can provide the tools necessary to navigate these challenges and improve your organization’s financial accuracy and operational efficiency.
Inventory Valuation and Traceability
Inventory valuation and traceability are central in maintaining accurate accounting as well as operational visibility. Inconsistent stock counts, untracked material transfers, and incomplete WIP records can result in growing financial discrepancies. Small accounting systems like QuickBooks offer limited support for advanced valuation methods such as weighted average costing. They also lack the functionality to track inventory across multiple sites or handle serialized and lot-based products. As a result, your manufacturing will experience delays in reporting, higher carrying costs, and difficulty tracking issues back to specific batches.
Accounting software designed for manufacturing-specific needs solve these issues by delivering features such as real-time lot and serial tracking, multi-inventory visibility, and automated valuation updates. These systems dynamically allow you to adjust valuations as materials move through production, and your dashboard can provide instant updates on stock levels and discrepancies. With a cloud-based solution, you can access these insights from anywhere, on any device, facilitating seamless oversight whether you’re onsite or remote. Automated traceability tools can help map your inventory movements across multiple locations and optimize your workflows to meet compliance requirements without the need for manual data entry.
Handling Production Variances
Differences between planned and actual material usage, labor hours, or machine output, can significantly distort your financial reports and impact profitability. This can be caused by factors such as unexpected machinery downtime, supply chain delays, or inaccurate demand forecasting. Small accounting systems struggle to capture these variances in real-time and tie them back to specific production runs, forcing you to rely on manual spreadsheets and processes. This not only increases the likelihood of errors, but also limits visibility into why the variances occur, making it difficult to make informed production adjustments.
Manufacturing-specific ERP systems are equipped with advanced reporting tools that can automatically compare planned versus actual input at each stage of production. These systems can generate real-time variance reports that highlight discrepancies in material usage, labor, and overhead costs. Dashboards can give you a quick view of production metrics. By integrating variance tracking directly with procurement and inventory management, these systems enable you to verify that adjustments are immediately reflected across financial reports.
Cost Tracking Across Complex Production Cycles
Accurately tracking costs throughout complex production cycles is a significant challenge for manufacturers. Monitoring expenses related to raw materials, labor, machinery, and overhead across various stages of production becomes increasingly difficult. Traditional bookkeeping systems often lack the ability to manage multifaceted cost structures effectively, resulting in issues like cost overruns, inaccurate pricing, and reduced profitability.
Implementing a robust manufacturing accounting system can address these challenges by providing tools for cost tracking and analysis. Features such as real time visibility into production resources like machines, inventory, and labor, can help you monitor expenses accurately. Furthermore, tracking routing and costs gives you better insight into each step of production and assembly. By leveraging these capabilities, you can optimize resources allocation, enhance your pricing strategies, and improve overall profitability.
Recognizing Revenue for Customer Orders
Realizing revenue for customer orders is a surprisingly challenging task in manufacturing accounting. Complex contracts, customized orders, and extended production timelines make it hard to determine the precise moment to recognize revenue. Desktop accounting systems lack the depth to handle these complexities, which can lead to premature or delayed revenue recognition and incorrect financial statements.
Switching to a real manufacturing ERP software can address these shortcomings by automating the revenue recognition process. Your business can set up rule-based automation to ensure more accurate reporting according that is determined by predefined criteria. Additionally, daily, monthly, and quarterly recognition schedules can be implemented to meet differing needs. Incorporating these features into your manufacturing business can help achieve accurate and timely reporting.
Regulatory and Compliance Reporting
Regulatory compliance is critical in manufacturing accounting, requiring adherence to standards such as GAAP, IFRS, and other regulations. Small accounting systems fail to keep pace with these constantly evolving requirements, leading to an increased rate of errors, non-compliance penalties, and time-consuming audits. Manufacturers may face challenges in maintaining accurate records, generating compliant financial reports, and enforcing data security, all of which are essential for regulatory adherence.
An ERP made for manufacturing can offer built in compliance guidance, aligning systems with audit considerations and regulatory needs. Automation of documentation, transaction tracking, and reporting can help minimize disruptions, and certify that financial statements adhere to standards like GAAP and IFRS. Advanced security features safeguard sensitive data, further supporting compliance efforts.
Sage Intacct – Top Accounting Software for Manufacturing
Sage Intacct provides manufacturers with a cloud native accounting solution built to simplify financial management and improve operational efficiency. Equipped with multidimensional reporting, it allows manufacturers to analyze financial performance across key dimensions like product line, location, and project. Its AI-powered general ledger (GL) certifies accurate bookkeeping by automating routine tasks and detecting anomalies, enabling businesses to make informed decisions quickly and confidently.
The platform’s customizable dashboards and intuitive report designer empower manufacturers to monitor key performance indicators (KPIs) such as costs, revenues, and variances in real-time. With robust automation for processes like accounts payable and receivable, Sage Intacct facilitates smoother cash management and fewer manual workflows. Furthermore, its powerful API connectivity integrates seamlessly with hundreds of applications, creating a flexible and cohesive financial ecosystem. These features make Sage Intacct an essential tool for manufacturers aiming to enhance profitability and maintain financial clarity.
Discover How Sage Intacct Can Elevate Your Manufacturing Operations
SWK Technologies is a Sage Diamond Partner, Certified Gold Development Partner, and Strategic Hosting Provider with decades of experience helping manufacturers tailor Sage ERP solutions to their unique needs. Our team of experts has supported thousands of businesses across various industries in implementing powerful, cloud-based ERP systems that improve financial clarity and operational efficiency.
Contact SWK here to learn more about the manufacturing accounting capabilities of Sage Intacct and see if this modern cloud ERP is the right fit for your business.