Accounting for the Numberphobic Review

It is this fear that the book does a great job to dispel. When you get past the smoke and mirrors of accounting jargon, you will find that your business figures are an interesting and completely critical way to keep up with your business and make better decisions.

Why do you need to know your numbers? Surely that is why you have hired an accountant? Your accountant is there to record, track and organize your financial statements. But they will not be able to help you understand the significance of what the numbers say about where your business is at, and where it needs to go.

Think of your business books as a car in need of servicing and your accountant as your mechanic. At the end of the day your CPA is not going to manage your business any more than your mechanic is going to drive your car. You are the one who needs to know how to read your “financial dashboard” so you can get where you want to go.

This book is the resource to help you learn to drive your business. A great deal of businesses fail, not because of undercapitalization, but because of a lack of management skills. At the heart of these management skills are numbers.

The book talks you through the three most important financial navigational tools:

• the Net Income Statement (or Profit and Loss Statement),
• the Cash Flow Statement,
• the Balance Sheet.

Here we summarize the main points of each:

The Net Income Statement indicates whether a business is making a profit, breaking even, or experiencing a loss. It should be reviewed monthly by the manager after the bookkeeper or accountant reconciles the monthly books. It reflects the business’s performance for that month and year to date.

Profits may vary monthly due to seasonal shifts in demand for different products and services. Aim to maintain positive profits by at least the end of each quarter.

The Cash Flow Statement tracks cash inflows and outflows from operations. It helps determine if the business can cover expenses in the coming month or quarter and how long it can sustain itself without additional cash. Successful small business managers often review their Cash

Flow Statements weekly, emphasizing the importance of monitoring cash levels.

The Balance Sheet provides a comprehensive overview of business operations from the start. It offers a snapshot of the business’s health at a particular moment. By subtracting liabilities from assets, owner’s equity, or the company’s net worth, is revealed.

Increasing asset values and decreasing liabilities indicate an improvement in net worth, making it a crucial goal to pursue and the ultimate objective of a business.

The book contains a lot more wisdom and advice. We highly recommend you read it.