I got a clear picture of how much effort each dollar earned takes.
Thursday, October 11th, 2007 11:40 pm
Accounting
My Most Valueable Lesson So Far: Accounting Matters
In my post starting from less than zero, the first reason I listed for my last (and I do mean last) business failure was my lack of accounting. My hate of accounting has literally cost me thousands of dollars and I would like you to learn from my mistake so you can be more successful much faster.
My reasons for not liking accounting started with the fact that I just didn’t understand it. Debits? Credits? Credits are a good thing, right? Debits are losses and thus bad, right?
Wrong.
I also thought that proper accounting was too much work. It turns out that setting up a general ledger isn’t that difficult or time consuming. And that if you have a general ledger you will save a lot of time and headaches later on.
Finally, my ego told me that I didn’t need all that information. That I had everything under control and that if I came up a bit short I just needed to bring in a bit more work. That little devil on my shoulder sold me out and almost cost me everything.
It took me two weeks to read my old college accounting textbook. While I was reading it, I implemented the basics of what every business should have including a general ledger, trial balance and cash flow statement.
All of a sudden I could see why my business was failing. For the first time I got a clear picture of how much effort each dollar earned takes. I saw how far off my guestimates were. I saw how much sales I needed to do each month and how many hours I needed to bill each week. I saw places I could cut back without losing quality. And I saw new opportunities for income.
Not bad for a few hours work on a Wednesday evening.
The next step in the process really surprised me and that was setting up “what if” statements. This showed me some very stunning information on what a difference increasing my price by small amounts would make. It also showed me the difference between billing 18 and 20 hours per week. Those extra two hours make all the difference in the world.
Armed with this new information I got excited about working again. The business was no longer some unsolvable puzzle. The problems I faced were no longer ambiguous, they had names like operating expenses and tax rates. Through accounting I could work backwards and set real, practical goals. Through accounting I learned how to win.
The problems with my business never had anything to do with the products and services. The customer service was usually excellent. The clients were always thrilled with the finished product. But the foundation of the business wasn’t set because I didn’t take the time to make it solid. Through my use of accounting I will always know where I am and where I want to go next.
