The dream: running a successful business. The reality: taking responsibility for all components of that business. While entrepreneurs eagerly tackle marketing, sales, quality control, production levels, customer service and the gamut of operating problems, most shun financial management. Accounting is seen as a boring, indecipherable stepsister best left to outside experts. But it needn't be boring or indecipherable. And it shouldn't be left to outsiders.
"Finance can be fun," says entrepreneur Suzanne Caplan, who encourages business owners to understand that numbers tell a story. "When you learn how to read that story, it gets far more interesting. After all, you probably went into business because of your personal competitiveness. The numbers are how you keep score."
If you simply glance at a month-end statement, you miss the details--gems of information that could mean increased profits, future stability and effective negotiations. Worse yet, you might fail to recognize negative trends or imminent threats. A basic understanding of accounting and finance enables you to use profit and loss statements, balance sheets and cash-flow reports as tools to help set budgets, control costs, respond to aggressive competition and adjust to economic downturns.
You don't have to be an accountant or even a bookkeeper to glean such insight, "but you will want to know how the system works," suggests Caplan. A turnaround specialist who has consulted small businesses for more than 20 years while operating her own small manufacturing firm, Caplan explains how the system works in Streetwise Finance & Accounting: How to Keep Your Books and Manage Your Finances Without an MBA, a CPA, or a Ph.D (Adams Media Corp., $17.95, www.amazon.com). It's not light reading, but it is illuminating. Biting off one chapter at a time, it's usually digestible. The subject is addressed in clear and simple terms, introducing accounting basics for the novice: how to set up a chart of accounts, accounts receivable and accounts payable, i.e., what is cash basis vs. accrual basis, debits vs. credits, fixed vs. variable cost?
While the first half of Streetwise Finance & Accounting helps you understand the origin of the numbers that go into income and expense accounts, how debits and credits work and how they track, what a general ledger is and so on, the second half details how you can put your newfound knowledge to use: how to price products or services, how to finance growth, how to anticipate and confront adversities and how to improve your bottom line.
Paul DeCeglie (MrWritePDC@aol.com) is a former staff reporter for Journal of Commerce and American Banker.