The 2020 Mid-Year Economic Update_long

Tip: Raise Profits With New Approach to Accounting

Management should use profit mapping as well as traditional financial practices.

To increase profitability, distributors should rethink their approach to accounting. This practice –the first step in a four-step process – means knowing the difference between financial accounting and management control, says Jonathan Byrnes, senior lecturer at MIT and author of Islands of Profit in a Sea of Red Ink, in Four Barriers to Distributor Profitability.

Hurdles that prohibit or slow a company’s ability to raise profits do not develop overnight, Byrnes said.

“It’s a legacy of a major change in the nature of the era of business that we’re in that’s happened in the past 20 or 30 years,” he said. The history of business from the 1900s to today reveals the key avenue by which companies became successful was economies of scale, something that Byrnes argues is no longer as important as it was in the past.

Financial accounting, which is meant to report aggregate results of the company to shareholders, is an accurate and venerable discipline for companies, but it shouldn’t be the way management determines how to allocate business to increase profits.

Rather, discovering profitability via management control should be done by profit mapping, he said, a method of running a two- to three-month income statement on every account or product within a company to a 70 percent accuracy level.

Read about overcoming the other hurdles to raise profits in Four Barriers to Distributor Profitability.

About the Author
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

By subscribing, you are agreeing to MDM’s Privacy Policy.


articles left

This is your last free article

Subscribe to MDM Premium today and get:

  • Unlimited access to
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events


articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events



You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.