If you’re like most entrepreneurs I know, you’ve been dreaming of starting your own business since you were a kid. You probably love every aspect of what you do – from designing your work space to building your brand.
The one thing you may not, love, though, is keeping the books.
After all, accountants get a bad rap -- – bean counters, pencil pushers, the guy who always nixes your big plans. But whether you own a modeling agency, a construction firm or an art gallery, you’d better get very friendly with your finances. Otherwise, all your big business dreams could end up turning into a numbers nightmare.
Sink your teeth in
If you think you don’t need to understand accounting because you have a professional accountant, think again. Even though you go to the dentist once or twice a year, you still brush your teeth every day. Think of accounting the same way. While you may use a professional for the big stuff, you need to be on top of the daily maintenance of your finances.
Don’t know the difference between accounts receivable and accounts payable? Not sure if you’re on an accrual or cash basis ? It’s not hard to learn the basics of accounting. Take a class, read a book, look it up on the Internet. However you do it, make a point of learning the A,B,C’s of your 1,2,3’s and start looking at your accounting system on a regular basis.
What you see will tell you how you’re doing, what you need to do differently and what you can and can’t afford.
Maybe your business is struggling and you don’t want to know the reality of your situation. Even so, it’s time to face the music.
No less than the Dalai Lama himself (and Suze Orman, for that matter), contend that facing the truth of your situation is the best way to face down worry and fear. Knowing your enemy is a big part of winning the war, don’t forget.
Even if the numbers all look like a big Sudoku puzzle to you right now, you’ll find that once you’ve educated yourself on the basics, they’ll start to fall into place. It’s not as complicated as you might think, and once you understand them, they’ll paint a clear picture of your business’ financial health.
Knowing what you owe out, what you are owed by your customers and how much you have in reserves will give you an idea of what’s working for you and what’s not. Maybe you need to change your prices, maybe you have customers who consistently cost you money. Maybe you’re making money on things you didn’t even realize were profitable. Understanding how your numbers interact with each other is like having a financial GPS to help guide you toward better decisions and your ultimate destination: Profitability.
How many times have you heard a celebrity cry poverty after their finances were mismanaged by their managers, accountants and lawyers? Famous people aren’t the only ones who rely too heavily on outsiders to manage their monetary affairs.
Even if you love your accountant, you shouldn’t let her be the only person who knows the details of your company’s financial health. Remember, if the IRS comes looking for answers, they’ll be knocking on your door, not your accountant’s. While your accountant can help you through an audit, ultimately, you are responsible for what you sign off on. If you don’t understand what you’re signing, you’re putting yourself and your accountant in jeopardy.
In the end, accounting is nothing more than a living business plan with all the details filled in. You might have (should have) had one when you started your business, but you probably haven’t revisited it in a while. Once you fill in the blanks with your actual sales and expenses, you’ll know what’s working and what’s not.
Then, you’ll be on your way to financial and entrepreneurial freedom.
- Surviving an Audit: What You Need to Know