Tuesday, July 19, 2011

Why you should learn to love accounting

My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. Balanced equations, balanced transactions, balanced books. In these turbulent times, couldn’t we all use a little balance in our lives? So how can accounting bring some balance to your business life?

Try focusing on managerial accounting. Large businesses have cost accountants, Fortune 500 corporations have whole departments devoted to the discipline. Successful small business owners need to assume this role as well. It is not as scary as it sounds. We are fortunate in this time period to be able to make use of a variety of accounting software programs. Beth and I are QuickBooks Pro-Advisors, but there are many other good programs out there that make accounting and bookkeeping easier for the small business owner. We have noticed that too many small businesses have only a tax accounting focus to their accounting. We suspect that is because most small businesses use a tax preparer to finalize their books and a tax preparer is naturally focused on what the business needs to file their taxes. It is very important to keep the tax authorities happy! It is also important to recognize that tax accounting is only a small component of the accounting picture.

Managerial accounting is using the information your accounting program or accountant is providing to help you guide your business. This means you must have financial statements prepared and available to you on a monthly basis. This is where the focus shifts from tax accounting which relies only on a year-end statement to managerial accounting which requires monthly statements. Ideally, as the small business owner, you have prepared a budget for your business and you are comparing your actual results to your budget regularly. You should also be comparing this developing and this task will bring these problems to your attention before they reach a crisis point. If your gross profit is less than you expected you need to understand why. Is your main supplier charging more than you anticipated? Are your shipping costs running higher? Do you have an employee theft problem? If your supplier is charging more, do you need to raise your own prices or can you get your sales staff to increase volume and earn you a volume discount. If shipping costs are rising, do you need to add a surcharge to your customers? If you suspect theft, do you need to install security cameras in your warehouse?

In today’s tough economy, no business can afford to be blindly operating at a loss. If you are losing money and you don’t know why, putting on your managerial accountant hat can help you answer the questions and formulate a plan to solve the problems. So do you love accounting a little more? Maybe not, but hopefully you can see how it can help bring some balance to your business life.

7 comments:

  1. It may sound strange, but many small business owners sell their products or services based on what their competition sells them for, or even worse, what they feel the consumer would pay for them. But a pricing structure should be based on numbers—what the product is bought for, how much it takes to market it and get it into the customer’s hands. Many businesses fall short when it comes to profits and are constantly have to play catch up because they’re simply not making enough profit from sales. But by creating reports from your financial numbers, you can easily see how much profit you earn per product, and make the proper adjustments, like finding a more competitive supplier or raising prices on certain items.
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  2. Accounting is most important substance in the world. Without accounting nobody can't get success in business. It is a part of the business. If you avoid the accounting you can't gain in your business. Whatever the enter business man should need to value accounting. I am grateful for your nice post.
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  3. My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. chartered accountants

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  4. It is quite normal for the people to buy the cars on finance. The cars price is not paid upfront in full in the normal practice. People take recourse to the financing options available to them so that they are not troubled to take the so much money out from their pockets in one go. Doyle Salewski

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