These may be the most commonly asked questions by small business owners. Are they the right questions? Maybe they’re the right ones to start with but if you finish there then you’re missing out on all of the fun.
How can accounting be fun? Well don’t we all go into business to make money? I mean yes hopefully you’re doing what you’re doing every day because you live to do and it brings you intense happiness but let’s face it if you’re in business at all then at some point you need to make money so you can take care of your family. That’s the most important thing that Gary Vaynerchuck talks about in his book Crush It. Family first. Gary makes 2 references in this book using an accountant as an example and both times that I’ve read his book now I’ve thought, “I’m that guy!” I didn’t call myself Bob the budget guy, I called myself “Nerd” for one basic reason. Because my wife told me to! Ok 2 reasons. The second one was because I absolutely love organizing things and making them work more efficiently! This has everything to do with accounting especially with the internet and today’s technology. This seems nerdy to me. I also love a good spreadsheet especially when that spreadsheet puts information at my fingertips that helps me make good decisions about my business.
So how can we make accounting exciting? When you really understand what your accounting is telling you and especially if you know the information is accurate and reliable then it gets easy to see what is exciting about the accounting.
So let’s go back to the original question. How much money did I make and how much do I have?” If you’ve been in business for more than 5 minutes and even if you have no accounting background you better know where to go to answer these questions. Your Balance sheet has the answer to one part and your profit and loss has the other.
Of course it’s exciting to look at a profit and loss to see how much money you’re making when you’re making money because this means you’re taking care of your family. Then it’s critically important to look at this when you are not making money or not making enough because that means you have some work to. Thus seems obvious. Now if you are making plenty of money and have plenty in the bank and then you stop looking any further into your accounting because you compare it to dental surgery as Chris Brogan did not long ago when he had me on his Kitchen Table Companies show then this is where you are asking for trouble.
Human Business works has a balance sheet and I am certain that Chris is looking at it. If not Chris then some highly trusted person in his organization is and I can promise you this. If ever that person phones Chris and says, “hey we have a problem and we can’t pay all the bills” Chris is going to take a very sudden interest in his Balance Sheet and it won’t stop there because the balance sheet will only show that there isn’t enough money but it won’t explain how it came to this.
Let’s say your business is doing “well” and that you are basing this on the fact that you have plenty of money in the bank and your business is showing a nice profit. Is it? Take your net income and divide it by your total assets. Are you investing your money well? That ratio may give you a clue. Gary Vaynerchuck talks about not paying yourself too much so that you can reinvest into the growth of your business. So you don’t take much salary and your cash (one of your assets) is accumulating. Sure this may provide some comfort but is it the best use of this important resource? If you make 100,000 net profit on 200,000 in total assets this suggests better use of your resources than if you have assets of 500,000. I might look ok now but how long it will last if I have to maintain 500,000 in assets on 100,000 of net income, especially when you consider that some of those assets will be needed to pay off liabilities.
The accounting is exciting when I use it to look into the future of my business and use it to see where I want to go.
If Gary Vaynerchuck wants to buy the NY Jets then he has to be looking at his balance sheet and his profit and loss and then way beyond so that he can figure how much he will need to pay for the team and based on that projection what he needs to do in order to get there. So the accounting alone may not be exciting but I bet if I sat down with Gary and analyzed all of his businesses and showed him a business plan the outlines the financial roadmap to buying the NY Jets? I am pretty sure that this would excite the hell out of him and I can only assume that Gary has already done this with his own accounting and financial team!
My goal, my “personal brand” is about showing people why the accounting part of your business HAS to be exciting because this is where you quantify and measure the results of your passion. It’s exciting when I have the comfort of knowing that I have a realistic financial plan in the place that is measurable and executable. Then I have to maintain and follow the plan and check my progress frequently so I can adjust for the unexpected and take advantage of the rapidly changing trends that are constantly going on around me.