Accounting for the Numberphobic: A Survival Guide for Small Business Owners - Softcover

Über die Autorin bzw. den Autor

DAWN FOTOPULOS is founder of Best Small Biz Help.com, an award-winning blog and resource site for small-businesspeople. A former banker, she is currently an Associate Professor of Business at The King's College in Manhattan.

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If you're like many small business owners, the mere mention of the word "accounting" fills you with the same sense of dread you had back in high school the night before a big math test. But your company may be at risk of failing, not due to the realities and challenges of the marketplace, but because you are uncomfortable reading and using basic financial measurements.

However, never fear. By the time you've finished Accounting for the Numberphobic, you'll be reading your financial dashboard like a pro. This book takes the terror out of accounting, as it demystifies--in plain English--documents like the Net Income Statement, Cash Flow Statement, and Balance Sheet. Illustrated with real-world examples and packed with practical action steps, the book reveals:

How your Net Income Statement is the key to growing your profits * How to identify the breakeven point that means your business is self-sustaining * What to do to measure and increase cash flow * What the Balance Sheet reveals about your company's worth * And much more

As a business owner, you can't make responsible decisions if you don't understand the financial measurements that indicate the health of your business. This book takes the fear out of the numbers, and empowers you to steer your way straight toward profitability.

Advance Praise for Accounting for the Numberphobic

"Anyone who runs or owns a small business should know what's in Accounting for the Numberphobic. If they're willing to learn what Dawn skillfully lays out in this book they will be more successful. Period." -- Rich DeVos Sr., Cofounder of Amway and Senior Chairman of the NBA Orlando Magic

"If you are an artist and don't ever want the qualifier 'starving' in front of your title, make Dawn your guru and this book your guide." -- Frances Pelzman Liscio, Founder, Punks and Roses.com

DAWN FOTOPULOS is Founder of Best Small Biz Help.com, an award-winning blog and resource site for small businesses. A former banker, she is currently an Associate Professor of Business at The King's College in Manhattan.

Twitter@BestBizHelp

Facebook.com/BestSmallBizHelp

Website: bestsmallbizhelp.com

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CHAPTER 1

Your Financial

Dashboard

The Net Income Statement, Cash Flow

Statement, and Balance Sheet

Accounting is a really big, complicated subject. It’s no surprise that

many small business managers want to hand anything to do with

numbers off to the “number people”—CPAs, bookkeepers, bankers,

and tax lawyers. Perhaps you can relate. If terms like GAAP accounting

principles, tax legislation, debits and credits, and tax

forms stress you out, don’t worry. First, you’re not alone. Second,

this book is not going to cover these topics. It is, however, going to

confront you with a truth you cannot afford to deny: If you want to

be successful at managing a business, you need to become proficient

at handling certain numbers. Put simply, you need to be able to read

and understand your financial dashboard.

Think about the dashboard in your car. You have a speedometer,

a gas gauge, and an oil pressure gauge. These instruments

measure the vital signs of your car’s operation.

They give you critical information about how fast you’re moving,

how much fuel you have in your tank, and the state of your engine.

If any one of these instruments isn’t functioning or you don’t

know how to read it, then pretty soon you’re going to be getting a

ticket, stalling out, or blowing a gasket.

Similarly, your financial dashboard has three gauges you need

to be able to read to manage a business—your Net Income Statement,

your Cash Flow Statement, and your Balance Sheet. These

statements measure the vital signs of your business operations.

They provide you with critical information about how much profit

the business is generating, how much cash you have in the bank to

run the business, and the overall health of the business at a point

in time—information that allows you to make wise and timely decisions

that will keep the business humming like a tuned-up car.

And guess what? Your bookkeeper isn’t going to make those decisions

for you. He’s there to make sure you have accurate and timely

records of business transactions to send to your CPA. Your CPA is

not going to make those decisions either. She is there to prepare

your taxes and make sure you don’t get audited.

It’s entirely possible for your “number people” to be doing their

jobs superbly while you are steering your business into a financial

danger zone. You could be spending money on the wrong things.

As a business manager, you might be taking out crazy amounts of

debt without understanding how fast that can sink the business.

You are the one in the driver’s seat. And if you can’t read your financial

dashboard, you’re driving with your eyes blindfolded.

Unfortunately, this is exactly what over 85 percent of small

business managers are doing, according to the U.S. Small Business

Administration. It’s no wonder that 40 percent of these businesses

fail to survive even four years. If you’ve heard this statistic, you’ve

probably also heard the reasoning that it must be due to lack of

start-up cash or unviable products and services. It’s not. There is

plenty of cash available and broad enough markets for the business

you manage to find new and loyal customers. Small businesses

largely fail due to mismanagement. If you want to keep the business

out of bankruptcy and reach the most important destination—

sustainable profits and free cash flow—then you need to take

the basic driving lessons necessary to maneuver a profit-making

vehicle for the products or services you manage. You need to become

fluent in reading what the financial dashboard reveals about

your business.

The great news is that you’re entirely capable of becoming an

expert at this. How do I know? Because I’ve taught hundreds of

small business managers—including the most extreme of number

phobics—what I’m about to teach you. I’ve seen them grasp the

concepts easily and, with many wonderful “aha!” moments, immediately

begin to see exactly where the risks and opportunities are

because they can finally understand how to respond to the numbers

on their Net Income Statement, Cash Flow Statement, and

Balance Sheet.

My objective in this chapter is to expand your financial vocabulary

beyond “bankruptcy” and “billionaire.” If you are like most

small business managers, you may be familiar with some, if not

most, of the financial terms in this book, but be at a total loss when

it comes to grasping their meaning and real-world implications.

This is like driving down the highway without being able to read the

road signs. When you see a sign with the number “65” on it, there

are several levels of knowledge you must have in order to read it.

You need to know that it’s a speed limit, and that you’re expected to

make sure the needle on your speedometer stays on or under a corresponding

“65” mark. You also need to know what this sign implies:

If you exceed this speed...