We were bantering back and forth about the knowledge necessary for one’s own profession. He said to me quite plainly: “Tanya, I am trained as a surgeon. You, as an accountant. We cannot be expected to understand the intricacies of each other’s profession.”
And I completely agree with that statement – or at least part of it. “It’s true. I know nothing of what it takes to become a skilled surgeon. Nor could I hack it in med school or in residency for that matter. But, I don’t need to understand orthopedic surgery to run my company. You, however, do need a basic understanding of finance for you to run yours.” Accounting is the Common Thread.
An aversion to accounting is not unique to the medical profession. I have clients that sell, construct or create every type of widget or service that can display a strong aversion to the number stuff. And, quite frankly accounting is dry. “I’m a CPA” is not typically fodder for an intriguing, in depth conversation about the issues of the world at a cocktail party. “You don’t seem like a CPA” has often been one of my favorite compliments.
But, if you are self employed and if you remember nothing else about accounting, remember these three things which I will cover in more detail over the coming weeks:
- You need to be intimately familiar with your Break Even Point. And by Break Even Point, I don’t mean what you think it is. I mean what the cold hard numbers say it is. Break even is a relatively straightforward formula but one that is vital to your company’s ongoing success. Break even simply put is the point at which your sales cover their costs as well as your monthly overhead. Everything from there up is gravy.
- Internal control is King. Many a company that was wildly successful has been brought to its knees by employee theft. Internal control needs to be a natural extension of not only your internal procedures but also your corporate culture.
- Taxes come in many disguises. You should have at least a rudimentary understanding of how you are taxed – both as a company and as an individual. It’s not just income tax you are facing as a business owner. It’s also self employment taxes, payroll taxes, capital gains tax, sales and use tax, state income tax, additional corporate income taxes, etc. Be very aware of how these affect you and what they add up to for you and your business.
Forcing yourself to get familiar with these three concepts will truly help you to understand your company’s heartbeat even more than you already do. These are fundamental concepts while still being basic so that you don’t need to spend more time on accounting than you have to. Then, you can run off to wear the other hundred hats you must wear to be a successful entrepreneur.