The Only Three Reasons Entrepreneurs Need Accounting and Finance

Observing finance and accounting professionals— or the way academics at most business schools train them — might lead you to believe that finance and accounting is a complex and arcane language understood only by an initiated few.  For an entrepreneur, the truth is that accounting and finance are only tools to accomplish three key tasks:
(1) To make predictions about the future;
(2) To help you make more effective commitments of time, energy and money to attract customers and deliver goods and services at a larger and more efficient scale; and
(3) To measure and reassess your progress, so you can reward and encourage profitable behaviors, report progress to third parties, and change directions when necessary.
Aspiring entrepreneurs must learn to grasp accounting and finance tools, rather than merely develop the ability to regurgitate formulas and reproduce financial statements in carefully controlled environments, in order to meet these three objectives. 
The First Task: Predictions
One of an entrepreneur’s objectives is to make compelling predictions about the future in a way that attracts others to work on a shared vision that will change the world in some way.  A group of people who have a common view of the future can work together to gather assets and to design and create processes that will help attract and satisfy customers in a way that makes the most efficient use of physical resources. In a sense, and within limits, entrepreneurs can shape the needs and desires of customers and transform raw material in a way that changes and shapes reality.
An entrepreneur makes predictions through three basic projections: future revenues, future operating costs, and assets needed to service future demand.  Accounting and finance can help because they give us analytical tools to make projections and to link what we expect to happen in the real world with the value added by our efforts.
In the early stages of a venture, projections can unite a team by making a fuzzy vision more concrete, measurable, and actionable. Steps can be broken out so progress can be measured. Quantitative goals can motivate.
In the middle stages of a business, financial statements measure whether earlier predictions were accurate. Trends in sales and costs can be projected into the future. The past results of sales strategies and a measuring of today’s sales leads will make it easier to predict tomorrow’s revenues. Likewise, understanding each step in the supply chain, manufacturing process, and delivery will help predict how costs will change with revenues.
In later stages of a business, if used correctly, financial statements can reduce a complex reality into elegant simplicity, so you can separate noise from what really matters, enabling a large battleship of a company to be turned away from danger.
The Second Task: Making Commitments

Entrepreneurs make commitments in order to build capacity to service future demand and to invest in assets that will lower operating costs.  You have to make commitments of time, energy, and money to help design and build sales funnels (processes that attract and close customers) and delivery processes (supply chains, manufacturing processes, or service delivery systems) where a series of steps converts raw materials and labor into something that customers need.
In essence, entrepreneurs make four types of commitments: (1) sunk investments in long-lived or fixed assets like a building or a machine; (2) promises to pay a fixed amount over time to use a fixed asset (rent) or a person’s time (salary); (3) borrowing money to expand; or (4) making working capital investments like inventory or customer credit, that eventually will be sold or recovered.
Costs accounting – measuring costs and relating them to activity – is the key to making good commitments. You must understand the incremental impact to profits and cash flow of every incremental sales, operational, or financial decision.
Cash flow projections and analysis will help you place a value on different commitments so you can weigh one versus another.
The Third Task: Measuring Progress
Using finance and accounting tools to monitor progress and, when necessary, make adjustments is crucial for a business.
First, measuring actual progress versus predicted progress helps to keep you honest.  Are you hitting the targets you set?
By accurately measuring results that are tied to individual effort, you can reward top performers. What is measured gets done, and people who know they will be held accountable make better predictions and are more productive.
Measuring progress in a way that links profits and processes helps your business become more productive because it allows you to highlight bottlenecks and problem areas. Tying expenses to those responsible for them and sharing information helps prevent fraud, and also helps you keep investors and employees informed. Transparency leads to more trust and a stronger sense of teamwork.
Finally, measuring progress helps you spot trends in revenues and costs early, so opportunities can be exploited and problems corrected before they pose a real threat to your business.

Source: www.forbes.com

How Someone From Accounting Can Kill Your Business

Now don’t get me wrong, I love accounting. And I love people in accounting. In my mind, businesses cannot live without bookkeepers, accountants, and all the smart teams who work in this important area. As entrepreneurs, we need these people. Brilliant people. Amazing work. All good.
Okay, is that enough of a butter job? Did I lay it on thick enough? I hope so. My aim is not to ruffle feathers.
However, as a business owner and entrepreneur, you need to know something. Something important. A something that could be killing your company and you don’t even know it.
What is this “something”?

Read on and pray this is not happening in your business…

Pull out of my drive the other day, cell phone starts ringing. Glance at the number and it’s from Chicago. Well, since Chicago’s a big town with lots of influential people, I grab the call.
“Hi, this is Eric.”
First thing I hear goes something like this:

“This is so-and-so in accounting. We want to know when you’re going to pay your invoice. It’s past due. Are you gonna pay it?”

Taken a wee bit off guard, I ask the slightly annoyed caller what company she is calling from and exactly how late we are. She names the company, and then drops this bombshell:
“It’s due tomorrow.”
Huh? Am I really having this conversation? I mean seriously.
Feeling slightly agitated myself, I point out the invoice is really not even past due yet.  Goodness, as a customer who has purchased thousands of dollars worth of “stuff” over many years, can you please check the mail tomorrow? Maybe the check truly is in the mail.
And say, while we’re at it, how did you get my direct number? Did you even check with our bookkeeper first? She’s the best one to have an answer anyway.
After going round and round with her for about 10 minutes, I hung up the phone. First thought to jump in my brain? Well, quite frankly, tons of thoughts jumped in there. But here is the one that really popped:

This person really doesn’t get it.

I am the customer for goodness sake. Does she realize this? Does she realize how important I am to her company? (Well, not me per se, but you know, me as the “customer”.)
At the end of the day folks, customers sign the checks. Rent checks. Electricity checks. And by golly — payroll checks: yours, mine, everyone’s.
So with that in mind — and only in my humble opinion; this person should absolutely not be allowed to make contact with customers. No way; no how.
And please understand, I am not trying to be hard on her. She is probably top-notch in accounting. Off-the-chart smart. But does that automatically make her great at talking to customers on the phone?
Um… I would venture to say no.
Okay, so what if your accounting team is allowed to contact customers right now? How do you solve this dilemma?
Here’s your easy answer:

Let your highly-skilled, well-trained customer service team handle all contact with customers.

Your customer service team is trained to do this, right? Handle the tough issues. Speak with the customer. So let them do the handling. Let them take care of it.
In this day and age, you and I cannot afford to lose face with any customer. The competition is fierce. So we must put our best foot forward. Every time. With every customer.
Can a cranky little phone call from a well meaning, but untrained person in accounting damage your business? Yes. It can. And it will… unless you stop it today.
NOTE: If you don’t know me, I’m Eric. Husband, father & life-long entrepreneur…
If you’re an entrepreneur, let’s you and I connect right here.
Seriously. Here’s a killer formula:
Your Wisdom + My Wisdom = More Success
My email is: eric at mightywisemedia dot com. 

Source: www.forbes.com by Eric T. Wagner

Accounting Software Review

Why Accounting Software?

Like most small business owners, you are likely excited about your product or service and enjoy working with your customers. However, when it comes to accounting and managing the tiny details of your company, you may feel frustrated and overwhelmed. The best accounting software can help you manage the details of your small business, improve client relations and streamline routine tasks with relatively few headaches.
Small businesses need nearly everything a large company requires to manage their books, but have a smaller budget and less personnel to support those needs. Therefore, you have to look for affordable, all-in-one software that can manage numerous aspects of small business accounting, including invoicing, customer and vendor contact information, inventory, payroll and reporting.
The most helpful accounting software for your business depends on your business type. Some solutions are more suitable for service-oriented businesses rather than companies that need to manage inventory, and others have limited tools for managing employees and payroll so are more suitable for micro-sized businesses. We recommend that you consider top accounting software that can manage your company's unique needs.

Accounting Software: What to Look For.

When choosing for the best accounting software for your business, please find the following criteria:

Ease of Use
This criterion is extremely important. Many small business owners who are thinking about buying a new accounting program may just barely be moving out of what Excel did for them when they first started up. So, ease of use is paramount. In addition, accounting is already complicated enough without adding the burden of a hard to use program.

Help & Support
Software of this nature is complex and so is setting up the software initially. Most providers offer only limited free services such as user manuals, help files and FAQs. Telephone, email or chat support is usually only available with a service subscription.

Accounts Receivable
This includes invoicing tools, estimate creation, billing tools and shipping. All small businesses need these features.

Accounts Payable
This module includes the ability to track vendor payments, prink checks and manage purchase orders.

Banking
The software you choose should be able to work with your bank and perform automatic or direct deposits, as well as create checks and deposit forms.

Payroll
The best accounting programs can manage employee profiles and status. They can also track hours, benefits, deductions and taxes. Most will allow you to create a payroll check right from the program or through automatic or electronic payment.

Inventory Control
Most companies have to manage inventory and services. Good inventory tools include the ability to track product by CPU/SKU, the capability to store a location with an item number and warnings when stock levels get low.

Time Costing
This accounting tool can track time spent on projects and can bill based on time spend on a project, project budgets, associated purchase orders and more.

Job Costing
Job costing tools can keep track of the cost of a job and may also be able to create job cost estimates as well.

Fixed Assets
Fixed assets include depreciable or fixed items such as office furniture or company cars, some accounting programs will help you keep track of these types of assets.

Conversions and Updates
Many small business owners may be upgrading from Excel or another spreadsheet program, so we looked to see whether the software could easily upgrade between programs and between versions.

Reporting
Good reporting tools can greatly increase the chance of success. Look for accounting programs that can run a good variety of useful reports. With easy to use reporting options companies can easily monitor what is working well or poorly for their company.

There is a lot to think about when it comes to considering accounting software, but it is worth thinking about since you will be working with it every day.

Source: www.accounting-software-review.toptenreviews.com

Businesses Lose Money From Bad Accounting

Your business is losing money, or perhaps just not as profitable as you think it should be. Here are two possibilities: your profit on each job or customer does not cover your overhead, or you are losing money on too many jobs or customers. Do you know which it is?
I’m always surprised (though I shouldn’t be any more) at how many businesses do not know the profitability of each customer or project or order they have. For instance, a sign company could not tell an associate of mine how much it cost them for an particular job they undertook. Their financial statements told them whether the entire business made money in the month, but on the months that they lost money, they were stumped: did they underbid their jobs, or spend too much money producing the work, or was their overhead too high?
At a more sophisticated level, a manufacturing job shop I consulted for had a cost estimate per job, but it included lots of overhead allocations. They could not separate out cash outlays from depreciation expense at the job level. The ace accountant Gerry Michael has an excellent short article on this topic, “Static Pricing in a Dynamic Market—A Dangerous Policy.” His point is that when business is soft and companies are not operating at full capacity, the cash expense of taking on an additional project may be much smaller than traditional cost accounting measures suggest. That manufacturing job shop brought Gerry in, he advised them to bid lower on new projects, and business started improving right away.
Strolling down the aisle of a trade show in the area of metal fabrication, I chatted with the owner of a cost-accounting software company. I assumed that everyone in the industry had a good handle on their costs by job—but I learned otherwise. Only half of the companies in the industry could accurately track their costs by project, he told me.
I ask companies how they bid complex projects. They usually say that they have an experienced estimator who works up cost estimates. I ask, “How do you know afterwards whether the estimate was accurate?” About half the companies have no after-the-fact cost analysis to evaluate the accuracy of the bid estimate. They tell me that Fred has been doing estimates for 30 years and he really knows the business.
Imagine a basketball player practicing free throws at the gym. Now turn off the lights so that the player does not see whether the ball goes through the hoop. Then add earplugs so the player cannot hear a swish or the ball hitting the backboard. How much does this kind of practice help the player? Similarly, if Fred has never gotten project-by-project feedback on what actual costs are, his estimates will not be very accurate.
If your cost accounting system is not up to snuff, or does not exist at all, where do you begin? The accounting expert Joe Schneid of AKT in Portland suggests “Develop and implement an accurate, consistent methodology to allocate expenses.” This is part of a bigger strategy, in Joe’s opinion, that begins with developing and monitoring budgets and ends with engaging the chief officers and the board of directors in monthly financial reviews.
Your accountant should be able to advise you on how to get that cost accounting system in place. If he or she seems clueless, then you have a tax preparer, not an advisor, working for you. Bring in a knowledgeable expert to help you get your system set up.

Source: www.forbes.com
Written by: Bill Conerly