Do Business Owners Need to Understand Accounting?
Posted on 15th June 2017 in Business
Written by Freya Hughes
We’re frequently asked if business owners really need to understand accounting. As the business owner (CEO or MD), you need a grasp of how a business works in every department – and that includes your finances. You’re at the helm because you know more than anyone else how to add value to your business, and it’s your vision and strategy that your employees are working with you towards. You might not need to be an expert on accountancy, but you can’t ignore it either.
We should start with what we mean by accountancy. You should be on top of your P&L, balance sheet and cashflow, so what else do you need to understand? The basic compliance work that your accountant is doing for you is one thing, however, now the industry turns its focus to cloud software the role your accountant can play has changed. Where once upon a time you’d be meeting annually for your tax deadline, accountants have evolved into hybrids of business coaches, tax experts and even friends. You should be meeting with your accountant regularly, taking an interest in, and asking them questions about, your finances – why wouldn’t you want an “outsourced” expert on your team?
Never be ignorant of an aspect of your business
I can’t imagine you’d decide to simply not learn how to use your POS system, or not bother to learn your managers’ names, so why would you not want at least a basic understanding of what your figures really mean? They’re one of the most important parts of your business to take notice of, as when they change, for better or worse, you will feel the impact.
You don’t know what you don’t know, but your accountant does. And they have a responsibility to help you connect to your business finances. Identify the gaps in your knowledge and have your accountant make you a forecast if you haven’t already. You can share this with your team so they understand their personal and the team goals.
Without getting involved in your finances, you have no way to monitor the effectiveness of your operation. Staying blind to this department will mean you cannot keep track of your payments in and out, or if your records are accurate. With the right accounting software, you’ll be able to manage your business’ standing in minutes. Including non-financial data will allow you to obtain a quick but thorough understanding of which aspects of your business need attention. So don’t rush off to your local college for a crash course in accounting. Sit down with a Management Accountant and drill down into your figures until they make sense to you. You’ll find you’ll probably start performing better and reaching your goals faster with a proper strategy in place.
How often should you check your finances?
Sometimes bookkeeping and accounting jobs might fall to the bottom of your priorities list, as there’s such a myriad of other things demanding your attention. If you’re delegating your books to one of your staff or even a family member/friend, you must have them maintain your figures either daily or weekly as so much can change in such a short space of time. Look into apps that can automate processes for the bookkeeper, like ReceiptBank, AutoEntry, Hubdoc and Expensify, as they’ll make tasks quicker and data secure and accessible.
If your accountant isn’t quite hitting the mark and you feel you need additional help with keeping on top of your numbers, it’s smart to seek out a Management Accountant (aka VCFO) that specialises in advisory services. They’ll be there to help you strategise your next moves so you can keep your cash flow – and revenue – looking healthy. We know for many SMEs money is tight. It may be tempting to choose the cheapest way of keeping your books up to date, but it is a dangerous game to not invest in professional help. You may choose to wait until your data is all due at the end of the tax year, but you’re actually backing yourself into a corner doing this. Not tracking your figures regularly will make for a hellish tax deadline day.
As The Huffington Post puts it:
“With a recent study showing people on average pick up their smartphones 1,500 times a week, it’s clear they have become part of our everyday lives. In the business world apps are increasingly used to support finance management. By having easy to use technology which highlights expenditure, debts and bank balances, it’s never been easier to manage personal finances.”
If, like some entrepreneurs we know, you just can’t seem to get the right kind of support from your accountant, it’s wise to investigate which Xero add ons and QuickBooks apps could help you operate. Finding a great forecasting tool won’t just save you a bit of time – one of our customers has been able to complete his finances in 6% of the time he used to before he signed up. That time could be used to do more exciting, fun jobs so what are you waiting for?
What information should you be tracking?
You need to have a look at the way your business operates and choose some key aspects to measure. Depending on your industry, these will differ. Key Performance Indicators (KPIs) – we prefer to call them Key Predictive Indicators because no business should just review past performance – will set you up well. KPIs are metrics that could see the difference between your business failing or succeeding. We’ve got a fully-stocked KPI Library to get you going, which you can have a browse of, which are divided up by industry. We know if can be time-consuming to sit down and think of the ones that are the most important, so we’ve got some ready to go lists of industry-specific KPIs you can look through here.
It’s your business, so you must understand your finances to make the best decisions about the future. That doesn’t mean you have to learn it all or fulfil that role. It is much better to work in collaboration with an advisor – they are a sounding board too. We’ve spoken to many accountants about how they work with their clients. Read how CRM Accountants, in the UK, make the most of monthly meetings and Illumin8, Australia, bare all in a unique strategy to become part of your team. And, more importantly, if you wait until year end, it may be too late to implement strategies that could have leveraged a successful opportunity to avoided risk.