I think it’s safe to say that most of us don’t pursue entrepreneurship to become accountants. But there’s no denying that without a sound understanding of what is going on with your company financially, there’s no way to run your business to its maximum potential.
I chose to write about this topic rather than leaving it to WENYC’s accounting expert, Christine Rico of CFO on Speed Dial, because I think it’s helpful to hear about the importance of numbers from someone who has also been intimidated by them.
Get the most out of the service your accountant provides by asking for reports and information that will help you.
Over the years, I’ve learned a few things that helped me overcome my intimidation. Here are five tips you can employ to sharpen your financial acumen:
Review weekly or bi-weekly reports, not just quarterly reports
If you wait for the end of every quarter to review your financials, you could miss out on key insights into day-to-day operations. Incorporating financials into your regular schedule also makes them far less daunting. Start by working with weekly or bi-weekly reports to get comfortable with your balance sheet, income statement and statement of cash flow.
Use the statement of cash flow to understand other financial documents
Cash is king. While you may struggle to understand other financial documents, you should at least know what money is coming in and what’s going on with it. This knowledge allows you to sleep at night! The statement of cash flow is a key document that is mysteriously but regularly overlooked. Use it to decipher other financial documents and the pieces will start falling into place.
Numbers standing alone don’t make a lot of sense. What’s important is how they relate to one another. Ratios such as your current ratio, inventory turnover, gross margin, revenue per employee and return on invested capital are just some of the great tools you can use to better understand your business. Your accountant will probably prepare these for you if you request it – and will even explain what they mean. Get the most out of the service your accountant provides by asking for reports and information that will help you.
Ask questions of your accountant
Signing your tax return means you are taking responsibility for the verity of all material presented to the IRS. Not to stress you out, but that’s a big deal. While you should trust your accountant, you also should have the ability to recognize any red flags that may be present in your return. In fact, as previously mentioned, part of your accountant’s job is to guide you through financials throughout the year, not just during tax season. The only dumb question is the one you needed an answer to and didn’t ask.
Take a course
I guarantee that you are not the only entrepreneur who has gone back to the basics to take an introductory accounting course at your local community college. Bring in your company’s financials and review them side by side with your assignments. The time and effort you put into taking an accounting course (often offered as an evening option), will yield exponential returns in peace of mind and future financial acumen.
As entrepreneurs, most of us have had times when we relegated the financials to the edge of our literal or figurative desks because they seemed overwhelming. It’s time to break that cycle and truly master your business.