Profit Centers: Pros & Cons

Profit Centers Pros & Cons- Complete Controller.

A beneficial place is a hierarchical unit in accounting that mirrors an administration-arranged structure of the association with the end goal of interior control. With the formation of profit centers, new systems, processes, and interfaces are created within a company. These have advantages but also disadvantages. When compiling and integrating into the entire company, please note the following.

Cubicle to Cloud virtual businessDependencies Between Profit Centers

There may be dependencies between the profit centers. That means one profit center creates services for another within the company. These must be correctly assigned and offset. There can be conflicting goals if the profit of one profit center leads to a loss for the other. Or if short-term success collides with the long-term strategy.

Cost Burden

Profit centers will charge costs that they cannot influence. For example, it must bear part of the cost of the expensive company headquarters, although it does not need these services at all or could buy cheaper externally.

Conflicts Over Resources

Conflicts over resources within the context of profit centers refer to potential disputes arising from allocating and utilizing limited and valuable assets, such as employees or machines. In the dynamic environment of profit centers, where each unit operates as a semi-autonomous entity, competition for essential resources can give rise to challenges that need careful management.

LastPass – Family or Org Password VaultConflicts of Interest and Goals

When profit centers act based on success, their primary focus is their success. That does not have to mean the success of the company. For example, in the profit center, only the short-term profit can be in the foreground while investments are delayed.

Impact on Customers

The profit center structure may contradict the “one face to the customer” principle if a customer deals with several centers (product areas). They may even appear as competing companies to customers.

You must take these problems and risks into account in the organizational design. In practice, therefore, there will always be direct intervention by the management in the areas of responsibility of the profit center to make the appropriate decisions in the event of conflicts and improve and optimize the alignment and cooperation of the profit centers.

Example: conflicting goals and mismanagement

From the point of view of the entire company, it is not always sensible to manage every organizational unit as a profit center. Especially not when it comes to vital areas. A one-sided focus on the profit center’s profit can lead to severely wrong decisions. An example should illustrate this:

“Can the production plant of a highly specialized apparatus manufacturer with core competencies essential for survival be a profit center in the production processes?”

In this case, the production plant would have to influence sales, for example, refusing to deliver a product to a Chinese sales company because the price paid by the Chinese is significantly lower than that of other sales companies. If the production plant management has this freedom, then this indirectly becomes the company’s sales management. If the sales manager does not get this freedom, the designation of profit center and the stated value-added makes no sense. In this case, running production based on cost and efficiency goals is probably better.

Complete Controller. America’s Bookkeeping ExpertsThe Internal Structure of a Profit Center

To a certain extent, profit centers are “companies within companies.” Accordingly, you can take on all tasks and functions, just like the entire company. The internal structure can then be related to operations and processes, such as:

  • Management of the profit center (corresponds to management)
  • Development
  • Purchasing
  • Logistics
  • Production
  • Quality management
  • Controlling
  • Distribution
  • Customer service

Individual functions and tasks can remain with the entire company. These tasks are usually the same for all profit centers. They can, therefore, be performed more cost-effectively in a central unit through synergy effects, economies of scale, or economies of scale.

The profit center’s management is responsible for their unit’s success. Like any other management team, it measures success criteria such as salescostsprofitsprofitability, or customer satisfaction. These are the key performance indicators of the profit center. The company management, therefore, regularly agrees on “profit targets” with the profit center management.


In conclusion, while profit centers offer a structured and management-oriented approach to internal control, they have advantages and disadvantages. Considering and addressing specific challenges when integrating profit centers into the overall company framework is crucial.

CorpNet. Start A New Business NowAbout Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.Download A Free Financial Toolkit