Do you believe it is necessary for small business owners to study bookkeeping or accounting?
There is definitely an advantage to understanding accounting, particularly as your business grows, however I don’t believe it’s necessary for small business owners to study accounting. Most small business owners can keep accurate records using a simple system like reviewing Cash Flow into Action to help with strategies to improve your business.
Although studying accounting is unecessary, business owners should have a good understanding of profit margins because small changes in margins can have a large impact on profit. Similarly, most businesses have a number of key indicators relating to revenue and productivity that will tell them how their business is performing. For example, in my business it is important to focus on sales revenue, cash flow and other key performace indicators. Once again, this does not require a study of accounting but a good accountant can help you work out the key indicators you should be focussing on.
On the other hand, many small business people are forced to study some accounting because they use general ledger accounting programs for their bookkeeping. Unfortunately, many don’t grasp the concepts and some feedback I receive is that many people are unable to provide records that are accurate and reconciled to their bank account.
This has several consequences – First, the information they are using to run their day-to-day operations may be misleading. Second, – their external accountant (who charges you for their time) has to spend more time than necessary processing your work, or may lodge returns with the tax authorities that are not accurate leaving you exposed to potential penalties. Lastly, – it can mean that you cannot afford to spend time with your accountant working on understanding your business because your budget has been exhausted.