Why Accounting Skills Are Indispensable for Entrepreneurs
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Entrepreneurs need to draw on a wide variety of skills to succeed. In the course of a single day, you may wear 10 or more different proverbial “hats.” In other words, you may take on 10 or more different responsibilities throughout the day. On top of that, you’ll be in charge of making decisions that impact the entire organization, which means you’ll need to think about how your decisions impact each department and individual in the company.
In most circles, you’ll hear plenty of people recommending generic skills like “communication” and “leadership,” which are certainly important. But other technical skills often get neglected. For example, it’s important that every entrepreneur have at least some exposure to the accounting world.
Why are accounting skills so important for entrepreneurs, and how can you get them?
Developing accounting skills
Fortunately, developing your accounting skills doesn’t take much time or effort. If you want to go all-out, you’ll need to spend years honing your abilities by pursuing a four-year accounting degree and possibly attaining your certification as a certified management accountant (CMA). But if you just want high-level skills to help you as an accountant, you can take online classes and review online learning materials for free to establish a baseline.
Why are accounting skills so important?
So what are the benefits here? How can higher accounting skills help you become a better entrepreneur? There are several advantages:
- Financial mastery: The most obvious benefit is that learning the basics of accounting can help you master the financial side of your business. For a business to succeed, it needs to be profitable. But more than that, it needs to be intelligently managed from a financial perspective. For example, it’s possible even for a profitable business to fail if cash flow turns negative; learning how to manage cash flow as an entrepreneur can help you avoid such a catastrophe. Accounting principles will also help you keep track of business financials, prepare for taxes, and set the business up for success.
- Synergy with your accounting team: Accounting skills can also help you find synergy with your accounting team. Ideally, you’ll hire an entire team of accounting professionals who can help you manage daily tracking of accounts payable, accounts receivable, cash flow, banking, and tax planning. But these professionals will still need your input and guidance. Having a background in accounting will make it easier for you to communicate with these individuals on your team. You can share ideas freely, explain your point of view, and intelligently scrutinize the recommendations they provide you.
- Decision information: Entrepreneurs are typically the primary decision-makers for their young companies. That means you’ll be guiding the business’s development with every choice you make. Having an understanding of accounting fundamentals can help you make better-informed decisions — at least from a financial point of view. For example, if you choose to take on a new client and offer them a discounted rate, how will this affect your profitability? What kind of terms will you be able to extend to them? How much of a financial risk will this represent, and how might it pay off in the future? Similarly, when should you hire someone new to fill a position on your team? Is it overextending the company’s financials to tack on another salary?
- Negotiations: Every entrepreneur quickly learns just how valuable it is to be a skilled negotiator. With improved negotiating skills, you’ll be able to push for more favorable deals with clients, increasing profits without pushing them away. You can push your employees to meet tighter deadlines and rise to new heights. You can even negotiate contracts with vendors and salaries with employees to keep your costs as low as possible. When you have a better understanding of your company’s books (and with finance in general), you’ll be able to prepare a more logical, grounded argument. You’ll also know when to walk away.
- Planning for your personal future. Accounting skills aren’t just useful in a business context. They’re also incredibly valuable for planning your personal finances. For example, how much money will you need to save personally each month to retire by the age of 60? How much money will you owe in taxes and what’s the best way to prepare for this expense? How much debt can you afford to take on without adding too much risk? Don’t neglect your own finances in pursuit of your growing business.