Understanding the Real Drivers of Your Company's Profitability
- Paola Sabran
- Aug 16
- 3 min read
“My company is profitable… but which customers, products, or activities actually contribute the most?”
Most SME business leaders know their company's overall financial result. However, they are less likely to have the information needed to understand what is actually driving its profitability.
Financial accounting shows the company's overall profit or loss. It meets accounting, tax, and statutory requirements and is an essential management tool.
However, it provides a broad view of the company. In addition, in many SMEs, annual financial statements are not available until several weeks, or even several months, after the end of the financial year. Business leaders may therefore receive information that is both too late and insufficiently detailed to understand precisely what is driving differences in profitability, identify the activities concerned, and take corrective action.
Which customers actually contribute to the company's profitability? Which products generate the highest margins? Which projects perform best? Which sites or activities actually create value?
To answer these questions, business leaders need more operational information.
A Tool for Better Analysis
To meet this need, many companies implement management accounting, which organizes financial information in a way that allows profitability to be analyzed according to the operational dimensions most relevant to managing the business.
Contrary to a common misconception, this does not necessarily mean changing software, restructuring the chart of accounts, or implementing a complex system.
Management accounting uses data already produced by financial accounting and organizes it according to these analytical dimensions.
Depending on the company's needs, these dimensions may include customers, products, business lines, projects, branches, production sites, salespeople, geographic areas, or any other dimension relevant to analyzing the business.
It also provides more regular management information, without necessarily waiting for the annual financial statements to be prepared. In many cases, the operational data already available is sufficient to monitor key profitability indicators and quickly identify variances requiring action.
The objective is therefore not to produce more figures, but to provide relevant information at the right time to support decision-making.
Valuable Support for Decision-Making
Two customers can generate the same revenue while contributing very differently to the company's profitability. They may purchase products or services with different levels of added value. They may also require very different levels of resources in terms of operational support, time spent managing the relationship, logistics costs, administrative follow-up, or ongoing sales assistance.
Similarly, two products with the same sales volume do not necessarily generate the same margin.
Without appropriate analytical tools, these differences often remain invisible.
Consider, for example, a company that operates on a project basis.
A project is sold based on a quotation. As it progresses, purchases, labor hours, subcontracting, and travel expenses gradually affect its actual cost.
Without analytical monitoring, a deterioration in profitability may only be identified at a late stage, or may remain difficult to attribute precisely to the project concerned.
By contrast, analytical monitoring makes it possible to identify potential variances quickly, adjust the organization, take corrective action, or, where justified, invoice additional work or services before profitability is irreversibly affected.
Management accounting therefore does more than explain financial results: it enables business leaders to take action while their decisions can still make a difference.
A Driver of Business Performance
Management accounting, unlike financial accounting, is not a statutory requirement: implementing it is a management decision made by the company.
Its purpose is to help business leaders gain a better understanding of their company, make more informed decisions, and sustainably improve its performance.
It can help guide commercial decisions, adjust pricing policies, analyze and optimize costs, improve the profitability of certain activities, allocate resources more effectively, support investment decisions, and identify the activities on which to focus development efforts.
Its effectiveness, however, depends on one essential principle: defining the analytical dimensions that are genuinely useful to the company. These must reflect its activities, organization, and the decisions that business leaders need to make.
Implementing management accounting is therefore, above all, an organizational project. The objective is not to produce more information, but to provide relevant indicators that enable the company to be managed more effectively, support decision-making, and improve profitability.
Key Takeaways
✓ Financial accounting measures the company's overall financial result but does not always provide information that is sufficiently detailed or timely to manage the business effectively.
✓ Management accounting provides a more operational view by analyzing profitability by customer, product, activity, project, or any other relevant dimension.
✓ Implementing it does not necessarily require changing software or restructuring the chart of accounts.
✓ Its purpose is to provide operational information that supports decision-making at the right time, helping business leaders make informed choices and sustainably improve the way the company is managed.
Afine Conseil supports SME business leaders in designing and implementing management tools tailored to their activities, providing relevant financial information to support decision-making and improve business performance.
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