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

Fotopulos, Dawn

Softcover

ISBN 10: 0814434320 ISBN 13: 9780814434321

Publisher: HarperCollins Leadership, 2018

Synopsis

As a small business owner, having knowledge of crucial numbers is the most important tool you can equip yourself with to survive today’s competitive marketplace. If you’re not a numbers person, Accounting for the Numberphobic is to the rescue!

Why do so many business owners dread looking at the numbers? Financial statements, ledgers, profit and loss reports--many avoid these and treat them like junk mail and phone solicitors. Nevertheless, it’s true--you’re not a numbers person. How can you learn to make sense out of all this Greek?

This easy-to-follow guide demystifies your company's financial dashboard: the Net Income Statement, Cash Flow Statement, and Balance Sheet. The book explains in plain English how each measurement reflects the overall health of your business--and impacts your decisions.

In Accounting for the Numberphobic, you will discover:

• How your Net Income Statement is the key to growing your profits;
• How to identify the break-even point that means your business is self-sustaining;
• Real-world advice on measuring and increasing cash flow;
• What the Balance Sheet reveals about your company's worth;
• And much more!

Don’t leave your company’s finances entirely in the hands of a third-party accounting service or an employee who is only loyal to the highest paycheck. Knowing the numbers yourself isn’t just about seeing how your company is doing, it’s about knowing where it is going--and guiding it toward the highest profits possible.

About this title

About the Author

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.

From the Back Cover

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

Excerpt. © Reprinted by permission. All rights reserved.

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 limit, you risk getting a speeding ticket. You

may even lose your license if you test the limits too frequently.

The numbers on your financial documents are like that speed

limit sign. The sign doesn’t need to communicate everything—

you’ve been taught what it means, and if you’ve been driving for a

while, and especially if you’ve ever gotten a speeding ticket, then

you know its implications. The sign is small, but the meaning is significant.

The same is true of those little numbers on your financial

dashboard. There are some nuances and calibrations to learn that

are essential to you as you make day-to-day business decisions.

So let’s start learning the lingo. I’m going to start by giving you

a basic overview of these three financial documents and what they

measure, along with a brief introduction to some of the implications

these measurements have for managing your business. Let’s

start with your speedometer—the Net Income Statement.

THE NET INCOME STATEMENT

The Net Income Statement, also known as the “Income Statement,”

“Profit and Loss Statement,” and “P&L,” reveals whether a

business is generating a profit, breaking even, or showing a loss. If

you didn’t know that, don’t worry. Many small business managers

don’t know it either. One small business manager who ran a series

of salons for children attended one of my seminars. When I told

her that all these terms mean exactly the same thing, she jumped

up and said, “Are you kidding me? Is that what my accountant’s

been talking about all these years?”

Accountants might refer to the Net Income Statement as the

“Income Statement,” typically dropping the qualifier “Net” because

it’s implied and they assume you know that. And now you actually

do. Similarly, the terms “net revenue” and “revenue” are used interchangeably.

And sometimes you may see either “revenue” or

“revenues” used as the plural form to describe the total amount of

net sales. None of these terms should leave you in the cold.

By the way, whenever you see the qualifier “gross”—such as

gross profits, gross receipts, or gross revenue—it means you’re

looking at those numbers before expenses or discounts are deducted.

Anytime you see the qualifier “net”—as in net revenue, net

expenses, or net income—it means you’re looking at the numbers

after certain expenses have been accounted for. Armed with this

simple knowledge, you’re already way ahead of the pack.

Here are the key questions the Net Income Statement answers

for you as a small business manager:

• Is our business making any money?

• Are our products and services the right ones?

• Are we pricing our products and services so that we’re not

cheating ourselves out of a reasonable return while still

remaining an attractive alternative to the competition?

• Is our gross margin robust enough to run the business?

• Do we know what our true direct costs are?

• How do we know our marketing efforts are paying off?

• Do we have the right mix of clients?

• How can we work half as hard and make twice the

money?

The Net Income Statement will reveal whether your business is

generating a profit, breaking even, or losing money. If the number on

the bottom line is positive, you’re making money. If it’s zero, you’re

breaking even. If it’s negative, you’re losing money. The bottom line

is what’s left after every direct and indirect expense is paid from net

revenue. That number is why you’re in business. It’s net profit.

Edition details

• Publisher: HarperCollins Leadership
• Publication date: 2018
• Language: English
• ISBN 10: 0814434320
• ISBN 13: 9780814434321
• Binding: Paperback
• Number of pages: 272