So what is accounting about? It doesn't sound very sexy at all and all of the technical words sound so boring and really not appealing. But let me tell you something. Learning about how to understand accounting can be easy and not necessarily as painful as you might think. The day you understand how to read those figures on a financial report, you will feel much more in control as you will know how to use these financial tools to make more money.
What the accountant does is delivering on paper is the financial story of your business. This is basically in very simple terms what accounting is about. How to understand accounting is simply how to read a story that is stemming from your financial accounts.
Bearing this very important concept in mind, you now will have a purpose in your mind whenever you will look at your financial statements. Take your financial accounts right now and ask out loud: what is the story you are telling me? You can tell the story of your business from the past, what you did it in the past and what were the consequences in your business, what were the mistakes you made that put you into trouble and what you now can do to make it better and you can even create your story as this is what financial forecasts are for. So see, this is in a nutshell the answer to "what is accounting about?": if you are a business owner and want to get better at learning how to understand accounting.
Now that you have that new perspective, I am going to reveal the 3 golden keys which are related to the 3 financial statements you need to look at: income statement or profit and loss statement, balance sheet and cash flow statement. Know that each of these financial statements tells you a story and I am going to tell you which one.
Firstly, your income statement tells the story of the performance of your business:
Do you make money? Do you manage your costs well? Are you consistent with your decisions? Do you have a good sales team? Is your marketing working? Is your product well priced? Do you have a low or high margin business?
Secondly, your balance sheet tells you the story of the risks that are inherent to your business and how you have been funding your business:
Did you take a lot of risks when you entered this business? Are you in debt up to your eye ball? Do you have spare cash to invest? Do you have sound investments? Do you have a long term vision? Are you a good negotiator when it comes to your supplier?
And finally, your cash flow statement tells the story of how well you have been managing your cash and expenses payments:
Do you have a high level of monthly debt repayment compared to what your business is making, do you manage to keep some spare cash after all your payments and expenses are cashed out? Can you afford expanding your business and invest more in purchasing new materials?
So what is accounting about? You just got it! After you learn how to understand accounting, you will be able to answer all of these questions very easily!
What the accountant does is delivering on paper is the financial story of your business. This is basically in very simple terms what accounting is about. How to understand accounting is simply how to read a story that is stemming from your financial accounts.
Bearing this very important concept in mind, you now will have a purpose in your mind whenever you will look at your financial statements. Take your financial accounts right now and ask out loud: what is the story you are telling me? You can tell the story of your business from the past, what you did it in the past and what were the consequences in your business, what were the mistakes you made that put you into trouble and what you now can do to make it better and you can even create your story as this is what financial forecasts are for. So see, this is in a nutshell the answer to "what is accounting about?": if you are a business owner and want to get better at learning how to understand accounting.
Now that you have that new perspective, I am going to reveal the 3 golden keys which are related to the 3 financial statements you need to look at: income statement or profit and loss statement, balance sheet and cash flow statement. Know that each of these financial statements tells you a story and I am going to tell you which one.
Firstly, your income statement tells the story of the performance of your business:
Do you make money? Do you manage your costs well? Are you consistent with your decisions? Do you have a good sales team? Is your marketing working? Is your product well priced? Do you have a low or high margin business?
Secondly, your balance sheet tells you the story of the risks that are inherent to your business and how you have been funding your business:
Did you take a lot of risks when you entered this business? Are you in debt up to your eye ball? Do you have spare cash to invest? Do you have sound investments? Do you have a long term vision? Are you a good negotiator when it comes to your supplier?
And finally, your cash flow statement tells the story of how well you have been managing your cash and expenses payments:
Do you have a high level of monthly debt repayment compared to what your business is making, do you manage to keep some spare cash after all your payments and expenses are cashed out? Can you afford expanding your business and invest more in purchasing new materials?
So what is accounting about? You just got it! After you learn how to understand accounting, you will be able to answer all of these questions very easily!
Business Finances Made Easy's mission is to help business owners getting an accurate understanding of their business finances. This will allow them to be able to discuss their business finances at any time with confidence and will help them to get additional funding on demand.
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