Segmentation can provide the financial clues you need to start rebuilding operations after a crisis. Segmenting will help your organisation track positive performance, identify critical weaknesses and become more resilient.
In financial reporting, segmentation is the process of breaking down the whole organisation into various segments and focusing on each one’s progress. The segments could be based on departments, product lines, service lines or locations, for example.
The new guide from Hopscotch Accounting, A Roadmap to Organisational Resilience: Tips for strategies and success, describes how you can drill down on the financial results for each segment and make informed decisions for the future.
Why you need segmentation
Larger organisations already present reports in terms of segments to meet the AASB national accounting standards, Australian Accounting Standard AASB 8 Operating Segments.
However, segmenting is also a sound strategy for small to medium-size businesses and NFPs which are not legally required to deliver annual reports in this way.
Segmenting can be conducted for internal review and planning. Monthly updates on segment performance are especially valuable since external factors like the pandemic can cause change financial conditions to change rapidly.
Regular, cloud-based segment reporting makes it easier to respond to both problems and opportunities as they arise.
Ways to segment an organisation
You may want to discuss with your accountant the best way to approach segmentation. Following are examples of segmentation approaches:
- Geographic lines, such as the main offices or territories of a national company:
| Canberra (Head Office) | Sydney | Melbourne | Brisbane | Adelaide | Hobart | Port Hedland |
- Departmental lines, such as those in a medium-sized company:
| Sales department | Production department | Accounts department | Marketing department | R& D department |
- Or for a small to medium NFP, it might be:
| Contracted services | Marketing | Administration | Assets |
Six-point segmentation plan
A plan to segment a small to medium business or NFP could cover these points:
- Determine the best way to divide your organisation into different segments
- Set up monthly accounts reporting for each segment
- Review the financial performance of each segment (revenue against direct and indirect costs) using ‘buckets’ tactic
- Adjust operations for the best performing segments to lean on strengths
- Adjust operations for the poorly performing segments to reduce weakness and become more resilient
- Inform your rebuilding strategy by continued segment performance monitoring.
How Hopscotch Accounting can help
We can guide you through the segmentation process that may involve:
- Dividing the organisation into segments for financial reporting purposes
- Using a cloud-based accounting program to set up monthly segment reports
- Calculating and review the revenue, direct and indirect costs for each segment
- Financial recommendations to lean on strengths – the best performing segments
- Financial recommendations to reduce weakness and improve resilience – the poorly performing segments
- Ensuring cloud-based systems continue segment reporting and advise on strategy.
Benefits of segmentation
With many organisations struggling from the pandemic restrictions and global market downturn, segmenting is vital for understanding and improving performance.
By assessing how the individual parts of an organisation are working, you can achieve a more accurate picture of the organisation as a whole and bring in changes to achieve resilience.
Segmentation will allow you to review performance, plan how to lift all your organisation segments, replace, rebuild and succeed.
Conclusion
Hopscotch can help your organisation. Our free ebook A Roadmap to Organisational Resilience: Tips for strategies and success, will help business owners, directors, CFOs, and managers of both businesses and NFPs clarify their actions and implement an effective segmentation strategy. Our experienced accountants can provide advice on managing your organisation’s strategy to rebuild following a crisis.
