Have you ever noticed that successful business owners’ vocabulary changes as their companies grow? They used to know which deals were landed. Now they track closing percentages.
They used to know the balance in their checkbooks. Now they need cashflow projections. They used to know how much they owed and to whom and what money was expected to come in this week. Now they have aged accounts receivable reports, and the accounts payable report is broken into short-term and long-term liabilities. They used to know which shipment would be sent today. Now they talk about inventory turns and capacity utilization. Whatever happened to English?
Are business owners destined to speak “accountese” if they want to be successful? Yes!
The fact that business owners must learn to speak a new language as their companies grow is symbolic of their need to manage an increasingly broader range of information as their entrepreneurial ventures become full-fledged enterprises.
The list of possible reports and ratios that could be generated in any one company is endless. An owner could easily spend all of his/her time generating numbers, doing calculations, and analyzing trends. However, most business owners started their companies because they were good at something other than number crunching. So as more analysis is needed, entrepreneurs hire bookkeepers and accountants to generate their reports and ratios.
Unfortunately, too many business owners also delegate (abdicate) their responsibility to analyze the numbers and make decisions to these same people. It’s essential for the business owners and managers to retain the responsibility of analysis. They are the ones who make the strategic decisions governing sales, hiring, pricing, expansion, promotional effort … not the accountant!
Most of the time, the business owner who abdicates responsibility justifies the action by saying, “That’s what I pay the accountant for” or “I trust my accountant. If there is something I need to know, my accountant will let me know.” In reality, many accountants have only been asked to generate a few simple reports and are not retained for a sufficient number of hours to prepare focused reports and analysis for their clients, nor have they been asked to be at the company on a daily basis. Therefore, the expectation that they would automatically know when something is important is terribly unrealistic, and even if the particular accountants are aggressive enough to point out potential risks to their clients’ business without being asked, the accountants do not own the companies. They can make observations and recommendations. Only the managers and owners of the business can decide.
Another reason many business owners rely too heavily on their accountants is because they don’t want to look stupid, so they just back off. Maybe the business owner hasn’t learned the accountese. They are busy and it takes time to learn about accounting systems, ratio analysis, etc. It’s easier to just pay the accountant and bookkeeper to prepare the reports and then keep doing what they do best. Except, the decisions to be made in a maturing, growing company require an understanding of the numbers. The accountant cannot be the only person who understands the reports.
Am I recommending that every business owner become a CPA? No, of course not, but my experiences working with more than 700 entrepreneurs in large and small (but growing) companies over the years leads me to conclude that we all need working knowledge of basic business accounting. I’ve met numerous entrepreneurs who are vulnerable in business decisions because they don’t know their own status. They are vulnerable to inadvertent errors accountants can make. (Yes, accountants can make mistakes.) Many business owners miss opportunities because they don’t recognize windows in their own numbers. Others take risky chances because they didn’t know what to ask.
There are some excellent courses available for non-financial managers through the American Management Association in New York, the Wharton and Rutgers Small Business Development Centers, and Rowan University Management Institute.
There are also several books on the subject available through local bookstores. A few that I have found useful for my entrepreneurial clients include Accounting Fundamentals For Non-Accountants by Stephen A. Moscove, Reston Publishing Co.; Fundamentals of Bookkeeping and Accounting by Michael C. Thomsett, Bermont Books; and The Desktop Encyclopedia of Corporate Finance and Accounting by Charles J. Woelful, Probus Publishing.
There are tutorial programs available with many accounting software packages.
When I listen to the questions asked by business owners of rapidly growing companies, I notice six major areas of concern: cashflow, staffing, capacity, profitability, capital and control.
There are standard ratios that can be generated to monitor each of these areas. Since they seem to be most essential for managed growth, the course work, reading and assignments to their accountants should probably start with these six areas.
Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions. Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companiesachieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search. 2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.