You might be thinking, "But I hate math! Numbers are not my thing." You don't need to master calculus to have a basic understanding of your financial information. The numbers tell a story and give you vital information to make good business decisions.
The first step to making numbers less confusing is to stop saying that you hate accounting and can't understand it! Many professional accountants make the subject much more complex in an effort to impress you, and possibly confuse you, as a means of persuading you to hire them.
I'm not advocating that you keep your own books if math is not your strong suit. However, it is important for you to understand the basics of business accounting for several reasons.
First, accounting gives you the vital statistics on the financial well-being of your business. Just as your weight, cholesterol, and blood pressure numbers tell a story about your physical health; your sales, profit margin, and cost of goods sold numbers tell a story about the financial health of your business.
Second, a basic understanding of accounting will help you make wise decisions in your business. You'll be able to see the direct connection between your operational activities and how they affect your bottom line.
Third, a basic understanding of accounting will assist you in communicating with and evaluating the accounting and tax professionals you decide to hire in your business.
Several years ago, a client of mine, Jack, asked me to help him "straighten out his QuickBooks account." My client suspected his bookkeeper, Sam—whom he hired at the beginning of the year, wasn't doing a good job because Jack wasn't receiving regular reports from him.
Normally, I don't do bookkeeping work for my financial coaching clients, as I'm focused on reviewing financial information, helping them identify trouble spots, and suggesting actions for improvement. However, I made an exception for Jack, and he gave me access to his QuickBooks Online account.
To my horror, I discovered that Sam had not classified any of Jack’s financial transactions in almost seven months! My client was paying this bookkeeper $500 a month and getting nothing in return! After slogging through all the numbers side-by-side with Jack to ensure everything was properly classified, we discovered he had an operating loss. Had he known this sooner, Jack would have been able to take corrective action immediately.
The lesson here is this: Know your numbers! It's important to review them at least monthly with your CPA or bookkeeper if you're paying someone to do it for you. What you focus on improves. If you pay attention to your sales, expenses, and profit, chances are good you'll make progress. You can't fix something if you don't know it's broken.
Do you have a basic understanding of your important accounting numbers so you can ensure your business is financially healthy?
Related: 4 Divorce Mistakes To Avoid