"A" is for Accounting

Why you should learn basic accounting techniques?

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"A" is for... Accounting!

© David Peterson - 2006

I believe the process of keeping track of your business accounting is one of the reasons why businesses in America fail at such a high rate. Let's face it... Accounting is very confusing. Accounting has Debits, Credits, Invoices, Purchase Orders, Timesheets, Reports, Taxes, Payroll, etc. The list seems endless and it is just flat out easier to avoid the whole subject than getting down to work and figuring out exactly what are your business finances.

I understand, I have been there, accounting is confusing. It's scary.  It's a down right pain in the you know what. Do you know what is scarier than accounting? It is having your business fail! You will fail if you do not have a good handle on your business finances.

In my first job out of college I was a Retail Store Manager at a large paint company. I learned the cycle of bad business finance management from the new contractor’s point of view. The cycle consisted of landing the big job, getting the first draw and then going out and buying a new truck for the business or a new car for the family. The next step in the cycle would be the painting contractor running up their store credit for their painting supplies. Finally when the large job was over they would run and hide as we tried to collect the money for the painting supplies they purchased from the store for that particular job.

It was always the same bad business financial cycle, especially from the ambitious painting contractors that wanted to "grow" their businesses. They would get the large contract, go buy something big, spend all their money, then default and disappear. I specifically remember one contractor showing me his brand new truck and telling me to wait until tomorrow because it will be covered in paint - he did not disappoint me, it was trashed.

Are new painting contractors bad painters, or bad leaders, or bad humanitarians? Of course they are not. They are just like every other start up business. Start up businesses regardless if they are a home-based business or a new law firm see a little money coming in and assume that:

A: There will always be more revenue then expenses.

B: There aren't too many expenses that a new business will incur. They will just do without those items.  

I should put this line in bold... Not only can you not count on the revenue coming in but you will have expenses! The trick is to know how much revenue is coming in, how much people owe you, when that money is due, and finally how much you owe to other people.  

At first glance it sounds pretty simple. You make $100 and you spent $80 on supplies so you earned $20. Business is not that simple. Business isn’t that simple even if you are running a Multi Level Marketing company. Luckily there is software that can help you with your business accounting. However my suggestion is that you go take a two or three day class at your local trade school on how to run the software.

As an example Peachtree Software comes in a variety of flavors and it works like a charm but if you don't know the difference between an invoice and a sales order then your business is already in trouble. I hear a lot of people say "... just give it to my accountant and they do it for me..." Well that is one option but I would say that the accountant is just one more of those expenses that you probably didn't count on when you started your business.  

Here is an interesting expense that happened to me when I started my JDPDigital.com business; in one year I went from an $80 accounting software package that was perfect for my business when I bought it to a $300 package with another $60 month payroll solutions. By my third year my accounting fees in my business approached $5,000! I have sense gotten that number way down.

 "A" is for accounting. You will have to learn the basics of accounting as well as learning how to become intimately familiar with your accounting software if you plan on beginning successful. You can do it you just have to take the time to learn it.

Sincerely,

David Peterson

Author of: 

Been There - Done That

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