Watch the Lesson:
Read the Lesson:
Your accounting department has the potential to be one of your strongest business assets. Most people leave it as an untapped resource, a wasted potential, and it usually comes back to bite them in the ass.
Did you know that Phil Knight, Co-Founder of Nike, was an accountant (and an accounting professor for that matter) before his ‘little shoe business’ skyrocketed to the global brand it is today?
Fact: Phil Knight continuously hired many accountants and lawyers to fill various company positions in Nike’s very early days.
And did you know that John D. Rockefeller was also an accountant before he made a legendary name for himself?
If Phil Knight and Rockefeller really focused on accounting, then there’s something to be said about this!
Recommended Read: Shoe Dog – A Memoir by the Creator of Nike
Take an honest look under the hood
You’ve been telling yourself, “Oh my books are fine, we’re doing great!”
“I don’t need to understand the numbers, it’s a waste of valuable time!”
“Don’t worry about it, the bookkeeper has it all figured out. We’re the best.”
If any one of those sound familiar and you’ve read this far, then I strongly suggest taking your accounting department up a notch. Let’s look at:
- The hidden potential within your accounting department
- Ripping through confusing numbers, to produce simple clarity and direction
- How much money you can lose by avoiding this subject
Your accounting department could be one of your strongest assets. But you can’t make the most of something if you avoid it.
When it comes to accounting, ignorance is never bliss.
I learned this the hard way when one day I had a sharp realization.
“Inside the subject of accounting is the real guts of a company”
It’s like looking under the hood of a really beautiful car to find out what’s driving it forward, what’s really going on behind the scenes.
Without taking a look, you’ll have no basis in fact to properly understand:
- Who your top performers are and which employees are stealing time
- Where you’re losing the most amount of money that can be easily stopped
- How to accurately predict your financial future
Awareness is the first step towards grounded decision making. And a willingness to change is required for any meaningful improvements to take root. It’s one thing to say ‘ya sure, ok’, and it’s a paradigm shift to absorb a lesson and take action.
For me that meant I had to:
- Stop avoiding the subject of accounting and figure out what I need to know
- Develop the discipline to change my thought processes and behaviors around the books
It’s a process, and it takes time to get there.
I have zero regrets about taking the time to learn and understand this department of my business.
Avoidance doesn’t help anything…ever
In one of my previous ventures I had an event production company that I loved. We sold lots of memberships and events kept selling out. Everything was great from an operational standpoint. In fact, the events were a huge success!
Sales kept coming in, people kept coming back, morale was high, word-of-mouth marketing was spreading strong. So the business and accounting had to be doing great, right?
WRONG!
One day I decided to hire a business coach to help me get to the next level. One of the key aspects my business coach wanted me to focus on were ‘the numbers’.
He wanted me to create a proper set of financial statements. I didn’t want to do it because I was young, rebellious and, in hindsight, I realize I was a bit of a know-it-all. But I choose to trust my business coach was guiding me in the right direction.
I was ap
The burn rate I was going through was astounding and unsustainable. Regardless of how good the events were doing for the attendees, the top-line sales didn’t mean anythin
I’m so grateful to have forced myself to undergo this process so I could understand the critical situation my company had accidentally fallen into all because leadership (in other words, me) was uncomfortable with the subject and avoiding it.
Going through that process and learning the numbers helped me understand tweaks I needed to make in the company to have a more sustainable future.
Lesson #1:
If you’re avoiding something, dive in instead! Or hire someone that knows more about it than you do so that the subject does not go neglected.
If you’re unsure and want to talk it through, book a call with me and let’s discuss. Your first session is on me!
Bring in experts to uncover your weaknesses
It was an owner’s worst nightmare. Employee theft.
At the time, I had a successful construction company and decided to go through an exercise with my books. I brought in an expert CPA and gave him unrestricted access. I gave him a budget and one simple mandate; “dive into my numbers and tell me something I don’t know, that you think I should know.”
He came back three days later and his words felt like a smack in the face. My bookkeeper had been stealing cash from me for months. The CPA showed me exactly how, where and how much. The bottom line result was that one of my ‘trusted team members’, who I saw daily in the office, had been stealing from right under my nose and hiding the evidence in a pile of coverups.
I thought there was no way, but sure enough, it was true.
Even though the books were being done right, per se, over the course of six months there were slipped-in transactions that didn’t actually exist. I just didn’t have the skill set at the time to notice them, and even if I did, I was neglecting to do a proper audit to verify the trust I was giving out all too freely
“Don’t think that you know it all. Don’t get so ahead of yourself that you let hubris handicap your growth.“
You are a great entrepreneur and a hard-working business person. This means you know how to leverage people and build a solid team, so do that!
I knew it was time to bring an expert in to look over the numbers. Within a few weeks, I had solid, fundamentally important information I had previously been missing. It helped me dissipated confusion and brought incredible clarity to my business so that I could make better decisions.
Lesson #2:
Bring in an expert to help you with your finances, your accounting structure, your forecasting, financial statements, auditing processes, hiring, government reporting, and your key team accountabilities. Obtain a professional accountants opinion on your profitability, your weaknesses, your strengths. Just get some solid, reliable expert opinions on your business in general.
Get the right help or you might find yourself like I did, urgently having a fire to put out.
Assess your risk vs. reward ratio
Q1: Is your business really worth the trouble?
Q2: Are you positive that your business will give you and your family the lifestyle you’ve been dreaming about?
You can only really validate and have a good look at risk and reward ratios if you have a clear understanding of your financials.
“If you ‘think’ your profitability is X and it’s ‘actually’ Y, it screws with your mind and your business!“
How are you supposed to make proper decisions in business if you don’t understand what’s going on with the books?
I had a profitable business and spent years improving the business model. There were repeat clients, high
If a business is low-risk and has a 10% net profit, maybe that’s not bad at all. 20% would be better and 30% is ideal, but for very low risk a 10% profit is okay.
I found myself in a situation where the generally accepted average for my industry was to have very high risk and very low reward. What happened? In typical ‘entrepreneurial seizure’ style (read E-Myth by Michael Gerber, great book) I dove in out of passion and failed to properly analyze the numbers in advance.
Had I known more about the numbers (AKA assessed the risk vs. reward) at the beginning or better yet, before starting, I would have made an exit decision earlier or maybe not even gotten into the business at all.
Thankfully, I came around and once I
Lesson #3:
Assess the risk to reward ratio before starting the
If you find yourself in a business with a low risk to reward ratio, think about planning a strategic exit.
Personally, I made sure the team was strong and then I sold the company. Afterward, I had my time freed up to look at new opportunities and start something else with a better risk to reward ratio!
Balance gut feeling with facts
Break down your financial statements into full detail. Figure out what your profitability is by department, person, product, month, week, and day. You’ll love the answers you find and your business will benefit immensely. These are the types of details that help compliment an entrepreneur’s gut feel.
As an entrepreneur or business person, so much of your day is driven by gut feel.
The vision in our mind a gut feel can produce is so powerful and we can believe in it even against the facts of reality.
It’s like running out the front door with sheer excitement and passion, then looking down and realizing you forgot to put shoes on.
Obviously that’s never happened to you, but the point is:
“Balancing gut feelings with the facts helps us choose wiser actions.“
Hire good, expert advice for your company.
Don’t cut any corners. Turn your accounting department into your razor edge, leading advantage over your competition. Look at your numbers, and make sure they’re true and reliable so you can keep making powerful decisions moving forward.
Some books I highly recommend on this topic are:
- Profit First by Mike Michalowicz
- Accounting Made Simple by Mike Piper
- Accounting for Dummies
Want to learn more? View my other lessons on accounting here, or check out my YouTube channel for all things business and entrepreneurship.
You work hard on your business, I want to make sure you’re focused on the things you love and what can make your business grow. If you’re ready to get help with that, book a free consultation, I’d love to chat with you!
