Don’t Like Accounting?

You will never be an integral participant of a community when you do not know the language of the community.  Accounting is the language of business.  If you are in business, you have a responsibility to become competent and conversational in accounting.

You may not like accounting.  You may think the accounting rules are inadequate and imperfect.  You may be reluctant to invest your team’s precious resources on tedious, detail-oriented accounting responsibilities rather than more important things like sales, marketing, or product development.  You may not want to dedicate the mental energy to learn the concepts (they are not difficult, they just take a little work to learn).  You may philosophically want to rebel against the accounting rules for stock options, how to capitalize software development, variable-interest entities or whatever.  Frankly, I understand those concerns, but my advice will still be to become proficient at accounting if you want to reach your potential in business.

• It undermines your credibility as a business person.  There have been many times where I am excited to be talking with a business owner, excited about their business, and the owner then says something that reveals an ignorance or very shallow understanding of a basic accounting concept.  Suddenly, it makes me question their knowledge and competency in business generally.
• Lack of accurate measurement can lead to fatal errors.  If your accounting isn’t accurate and you don’t really know how your business is doing, you are tempting fate.  You have a responsibility to yourself, your employees, your customers, and your investors to present an accurate picture of your business.
• Misrepresentations, even when unintentional, never lead to good outcomes.  Once, a business owner gave me financial statements that had 11 months of revenue and 10 months of expenses.  Some business owners mislead themselves, through a mix of hope and lack of understanding, into making accounting errors.  When these numbers are provided to external parties, it leads to wasted effort, broken dreams, lack of credibility, and people wondering if it was a lack of understanding or something more sinister.

Also, please assume that your accounting can improve rather than believe you are perfect, particularly if you are audited and then may have a false sense of perfection.  Many business owners assume their accounting is accurate because they have relied on a trusted CFO or accounting manager and their own knowledge.  Realistically, that is not good enough.  Sometime in the life of your business, it is worth bringing in an expert to do a “Quality of Earnings” review to give you a check-up of your accounting and give you a report of where your accounting can be improved and what the true annual earnings power is of your business.  Auditors do not look at things in this way, so it is a separate concept from an audit.  Please have an open-mind to improvement and your first instinct should be to try and find ways to improve rather than blindly believe that “our numbers are clean and no one will find anything that is inaccurate.”

Please do not underestimate the importance of accurate accounting for your sake and the sake of your company.  This is particularly important as you are deciding whether and when to sell your company.