Accounting for Salesmen

This title is perhaps a bit misleading. What I intend to do is not to convert salesmen into accountants but to show the great advantages of having salesmen and accountants working together. A company which has a sales-minded accountant and a profit oriented salesman is fortunate indeed. Let’s explore the ways to develop this very important — and profitable! — situation. First, we will explore a concern which is important to both areas: Record keeping. This is, of course, a basic part of accounting, but it is also important for sales personnel. While accountants keep track of income and expenses of the company, salesmen keep track of income and expenses of their own. However, a good salesman also keeps in mind that each of his customers should produce sufficient income to cover the expense of servicing his account while still leaving some left over for profit.

At the same time the accountant should provide the salesman with information about his customers. Good examples of customer information which can benefit the salesman are:

• Average usage by product type
• Gross profit by item
• Credit history of the customer

One important aspect of making a profit, but at the same time staying competitive, is pricing. Here again, having an accountant and a salesman working together is invaluable.

Cost estimating is a science but pricing is an art. After the accountant has calculated the cost of producing a product, the salesman should be brought in to help the management determine the selling price. The salesman, if he is good, has a good idea of what the market will bear. He can also give a fair estimate of the volume expected, lead times for production and payment history. Much of this information will come from ‘the grapevine’, but a good salesman will be able to determine which information is likely to be correct.

The accountant, working closely with the management, will know the volume necessary to break even at the current price levels, and will also know how much volume is necessary to reach the desired profit. Sometimes, the success of reaching these goals is to have a good ‘overhead account’ with enough steady volume to cover most of the fixed overhead, thus giving more leeway to fill the rest of the plant with very profitable business. But sometimes the exact opposite is needed because of specialized techniques or machinery. In these situations, it will be necessary to work with a lower volume but higher margin accounts.

For more tips, try my article on accounting principles.

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