Thursday, February 27, 2014

Accounting May Be Boring, But It's Critical

Accountant getting frustrated.
Don't frustrate your accountant by waiting until the last minute!
As a business owner and former CFO, I think finance is exciting. However, I find accounting very, very boring. When I previously served as an interim CFO, companies would contact me to fill the role of a controller-type CFO. I always declined. Can you say Boring with a capital B? Obviously, accounting types find accounting exciting, but I'm a financing type. The two are strongly related. But my focus is on analyzing past accounting data to identify trends, project future financials and help make strategic and operational decisions. Just gathering data and compiling it? No! I understand accounting and can do much of what's required but the sheer repetitiveness makes me want to scream.

I say all this because I can understand how most small business owners find accounting boring. Okay, I'll admit that most small business owners find accounting AND finance boring. In addition, most small business owners don't understand what's involved and see the whole discussion as somewhat of an endless pit they could never understand. But this thinking not only does you a disservice, it can kill your business. That which you ignore can cause you to engage in unproductive behaviors and make decisions which put your business at risk. Therefore, it's critical that you develop at least a rudimentary understanding of small business accounting basics. One great resource to do this is the Accounting Coach.

Numbers drive any and all businesses, including your business. The amount of revenue you generate, the number of employees you hire, the expenses you incur, the profit you make and the cash you need are all numbers. The value of the assets your company owns and the liabilities it has are all numbers. You must understand these numbers, their source and how they work together to effectively run your business and establish and meet your goals. So if you have NO understanding, I recommend you take a class at a local four year or community college, find an online course, or get an accountant to provide you with a tutorial. You don't need to be an expert but knowing the accounting basics will really help.

For example, if you don't track your numbers, you may not realize that the amount unpaid by customers has increased significantly over the last several months. Or you may not realize that one major customer went from 20% of sales to 40% of sales. Or you may not realize that missed an installment payment on a quarterly payment arrangement. All of these could lead to serious problems for your business.

For another perspective on small business accounting, refer to the New York Times article, Basics of Accounting Are Vital for Entrepreneurs.

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