"I worked in accounting for 2 1/2 years, realized that wasn't what I wanted to do with the rest of my life, and decided I was just going to give comedy a try."
-- Bob Newhart
After helping so many businesses over the last 20 years, I have come to recognize one absolute truth that must be followed or else run the risk of serious consequences: Every business owner must understand and maintain their financial statements.
Recently, I received a call from an entrepreneur who had been reading my columns for some time. He was having problems in his business and thought that I could mentor him and help get them on the right path.
I met with him and, as we talked through the trouble he was having, I quickly realized there was no way I could help him right now. He was buried in an accounting nightmare, to put it mildly.
Not only did he have some serious reporting deficits with the various government agencies he dealt with, his accounting data was not even close to accurate. The way he determined whether he was making money was simply to look at his checkbook without any knowledge of what bills were coming due or which ones had gone unpaid. As a result, he had no real idea if he was making profits or taking losses.
His accountant was terrible, and he admitted to me that he had no idea what his financial statements meant.
Before I could step in, he would need someone to address his accounting challenges, so I asked Ken Saxon, a local CPA, to work with him. Ken is my accountant, so I could personally vouch for the quality of service he provides. I know he really cares about his clients and I could trust him to become actively engaged with this client too.
Running a small business requires you to understand and ensure the accuracy of your financial statements. By being unable to do so, this entrepreneur had gotten himself into some major issues on so many fronts. He understands now how important this is, but he really should have known this when he first started his business.
Now, I am not suggesting that all business owners must do their own bookkeeping. An accountant or bookkeeper can prepare the financial statements, but it is critical that the business owner understands what the financial statements are saying and can ensure they are accurate. Taking a course in QuickBooks is a wonderful way to start this process.
Now go out and make sure that you spend some time and energy understanding your financials and ensuring their accuracy. In many ways this is like learning a foreign language, but it is a language you MUST learn!
Jerry Osteryoung, a consultant to businesses, is the Jim Moran professor of entrepreneurship (emeritus) and professor of finance (emeritus) at Florida State University. He can be reached by e-mail at firstname.lastname@example.org.