B&M removes CFO after £7m accounting error

Discount retailer, B&M, is reeling after discovering a massive accounting error will dramatically cut its annual earnings. 

The mistake has resulted in the company’s CFO, Mike Schmidt, being given his marching orders. The company has also had to adjust its profits and saw its shares slump 20%. 

The story is now being held up as an example of how accounting can dramatically go wrong if the right accounting software, as well as checks and balances, are not in place. 

What happened at B&M?

According to The Guardian, the problem at B&M was as a result of an update to the company’s operating system earlier in the year. This resulted in £7m of overseas freight costs not “correctly recognised in cost of goods sold.” 

This has had a significant impact on the company’s projected earnings with adjusted profits for the year to March 2026 now expected to be between £470m and £520m, says the newspaper. This is down from its previous estimate of between £510m and £560m. 

The company has now commissioned an external review; and says that the system issue has been fixed. Schmidt will stay, but recruitment is ongoing for his replacement. 

What is COGS?

The metric at the centre of this debacle is Cost of Goods Sold (COGS), which we have given a detailed explanation of in our guide.

In basic terms, this is the total cost of producing or delivering products or services you sell. While this will vary from business to business, it might include raw materials, labour, and packaging and shipping. The latter would definitely be on the list for a retailer like B&M. 

COGS, though, must be delineated from cost of revenue, operating expenses, and capital expenses. 

It can be calculated using one of three methods: the weighted average method (the average cost of all items in stock), the “first-in, first-out” (FIFO) method, or the “last-in, first-out” (LIFO) method. You must choose a method that fits best with the dynamics of your business. 

How to get accountancy right

While most businesses are not operating at the scale of B&M, every venture must have quality assurance in place when it comes to accountancy. 

The key is to pick an accountancy package that matches your venture’s needs; but also to have stringent checks in place with designated people in charge. 

The implication of getting COGS wrong goes beyond calculating the wrong levels of profitability. It can mean a misguided notion of the health of your business, which strategic decisions are then made upon. But it can also result in tax liability being miscalculated and this carries possible financial consequences.  

One US bookkeeping business called COGS errors “…among the most stealthy profit-killers around”. As B&M has just learnt at huge cost to reputation and profit, even the biggest ventures can get it wrong.