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Hello All, My first accounting teacher was a wiry older gentleman who epitomized the stereotype of an accountant. He was technical, precise and came across as boring. He spent the first two months of our class painstakingly teaching us about debits and credits, which at the time made all of us want to scream in frustration. We wanted to move on the more interesting aspects of accounting (yes, there are some) and couldn’t understand why we had to endure hours of lessons on something that seemed meaningless. In retrospect, I understand how important an understanding of debits and credits are to accounting . They are perhaps analogous to the ones and zeros in computer code and are the language by which financial data is turned from a bunch of numbers and descriptions into reports, that can then provide an infinite amount of analysis. Of course to have good reporting, you need well defined data or you will have, as the saying goes, “garbage in, garbage out”. I’m not suggesting that all business owners go out and learn debits and credits. Accounting software has largely replaced the need to have a technical understanding of accounting and has made this the ability to understand your finances accessible to small business owners with no accounting knowledge. The important thing for small businesses is to have an accounting system, particularly, if they have any interest in analyzing their data. Data analysis for business has become a massive industry. For many small businesses, however, it doesn’t have to be complicated or expensive. A good accounting software has numerous reports and export to excel functionality that lets you slice and dice your data in a plethora of ways. You can look at basic reports such as the profit and loss, sales by customer or product/service or how much you owe your suppliers. More advanced reporting might include comparison of actual results to budgets, seasonal or location based sales reporting and consolidation of results from multiple businesses. The goal of these reports is to have a better understanding of your business which can help improve profitability, improve collection rates on your receivables, better manage your cash flow, calculate profit-sharing, eliminate products that aren’t selling well and on and on. Ultimately, a good accounting system combined with relevant analysis can go a long way to making your business more successful.
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