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Accounting. The bane of many a solopreneur or small business owner. What is it about accounting that gives this group of people, you, such willies? Perhaps it because the whole profession is one big black box. The mystical secrets are held within, released by someone with years of experience. Like some green visored Gandalf. Pass them your tired box of receipts, out comes these magical spreadsheets.
Nobody Likes the Scale
On a more personal level, maybe it is because accounting, and its most common output, the profit and loss statement (P&L), are the entrepreneurial equivalent of weighing yourself. You spend your days making decision after decision.
How to spend your money, what products to sell, where to sell them, and who to sell them to.
You are wielding your expertise and talent in the directions you deem fit. Then, at the end of the month, you step on the scale….
The P&L tells you if you’ve made progress or not. Like someone who made a handful of bad food choices or “binged” you get throttled by the “scale”. Worse, you may feel you made the RIGHT decisions and the scale tells you something completely different. That’s where the frustration really lies. Frustrated, you go off making decisions solely based on the fact that SOMETHING has to change because the P&L told you so.
Coming Clean
That is what I think is most frustrating about the accounting profession. The traditional measures, and traditional ways of presenting them are completely outdated. In fact, they are designed to handle the typical large scale manufacturing entity. They really should have little bearing on today’s online entrepreneur or small business owner. Very little, if not zero. The typical P&L, balance sheet, and cash flow statement are nothing more than a vehicle to allow outside parties, such as banks and investors to be able benchmark companies in an apples to apples manner.
The Numbers Can be Your Friend
So, how can accounting be turned on its head to allow today’s radically different businesses take advantage of it? Well, here’s a few ways:
- Begin with the end in mind – To truly measure your business’ performance, you must truly understand what the purpose of your business is in the first place. And no, this isn’t to “make a profit”. There’s a reason you do what you do. What burns inside of you to make you get up every day? This is the advantage a solopreneur or online entrepreneur has. A larger entity could very well be in business “to make money”. You are probably not. But, you can’t take the steps needed until you understand that.
- Stop using a P&L – Yes, an accountant is telling you that. Don’t look at it. At least, not in its current form. The P&L is like stepping on the scale when you are trying to get in shape. Your weight alone isn’t going to tell you anything. You might be burning fat and building muscle, but the scale doesn’t budge. Same goes for your business. You might be adding clients, building a following, or laying the groundwork for a new product. But, the P&L isn’t budging. Truth be told, depending on where your business is in its evolution, it probably doesn’t matter if it is.
- Measure what is important – Remember that part about having the end in mind? What is going to get you there? THAT is what is important, THAT is what you need to measure. Profit, in of itself, isn’t going to allow your business to grow and achieve its potential. Instead, your business will be profitable because it grows and achieves its potential.
- Focus on improvement and optimization – The financial performance of your business should highlight areas where you can invest more to gain better performance. What it shouldn’t be doing is tell you continuously where to cut, cut, cut. As a small business owner or solopreneur, your focus needs to be how to get yourself out of the inner workings of your business and out in front, guiding. Using traditional financial management tactics, as in cutting costs, is directly opposed to this and operates from a position of lack. Spend to improve and your business will flourish.
It’s Time for Accounting to “Pivot”
The accounting and financial management function can be an asset to the growth and evolution of your business. That potential can only be realized, however, if you focus its light in the right areas. Over the next few weeks, I’ll show you how to do that. Whether you handle your business finances or outsource it, I’ll show you how to ask the right questions of yourself and/or your accountant as well as put the right systems in place to help you reach your goals.
What aspects of your business finances give you the cold sweats? What doesn’t make sense?
