Accounting for the Numberphobic A Survival Guide for Small Business Owners

Book Preface

HOW TO THINK ABOUT THIS BOOK

Have you ever watched the classic movie The Wizard of Oz? Do you remember the scene when Dorothy, the Scarecrow, the Lion, and the Tin Man were shivering in their shoes in front of the Great and Powerful Wizard? Flames were rising, his voice was booming, and the great hall rang out with his fierce and foreboding presence. Then, to Dorothy’s horror, her little dog Toto ran over to the curtain behind the Wizard, grabbed a corner, and pulled it aside to reveal a powerless little man with a white beard from Kansas. The Great and Powerful Oz was cut down to size in an instant.

In the same way, Accounting for the Numberphobic is going to rip away all the smoke and bluster and show what’s really behind the screen when it comes to using your financial statements to make great management decisions. It’s going to nuke your numberphobia for good and leave you talking about business accounting as something “fun” and “easy.” I know it sounds too good to be true. But after you read this book and review the “Key Takeaways” at the end of each chapter, which offer you the opportunity to apply concepts immediately and effectively, you’ll see that managing a small business can be as easy as playing a video game—because you finally know how to keep score. This book efficiently lays out a tried-and-true roadmap for building a profitable business. This is my goal; I want to show you the simplest way to get there with a book that is comprehensive without being textbook-long or textbook-boring.

You may have taken accounting courses but this is not like any accounting book you’ve ever read. There’s not one syllable with “debit,” “credit,” or GAAP lingo camouflaged on these pages. There are plenty of CPAs out there who have written the equivalent of nontoxic sleeping aids, so this book is easy to follow and fun to read. Step by step, story by story, I make the hard things easy to understand  and to implement. All roads are far easier to travel if they’ve already been paved.

Accounting for the Numberphobic begins by unpacking your three most important navigational tools line by line: the Net Incom Statement (or Profit and Loss Statement), the Cash Flow Statement, and the Balance Sheet. Crucial to the very survival of your small business is understanding what these financial statements are telling you about the state of your business. Chapters 1 through 3 review the Net Income Statement, what it measures, how it works, and how you can improve profitability by making small changes.

Chapter 4 takes you through a breakeven analysis, which is important to know if you’re building a viable business. Chapters 5 and 6 contain in-the-trenches advice about reading your Cash Flow Statement and managing the collections process to avoid bankruptcy, something many business managers learn after it’s too late.

Chapters 7 and 8 then focus on the Balance Sheet, how it works, and its importance in measuring the health of any small business. They’ll make you an insider by showing you how bankers scrutinize the information on this statement and how you can use this insight to your advantage. Chapter 9 reveals how the Net Income Statement, Cash Flow Statement, and Balance Sheet interrelate as the business conducts day-to-day transactions. Eventually, these statements will become so second-nature to you that you’ll be able to anticipate improvements or see risks before they happen. Chapter 10 reviews the key takeaways from the entire book through a oncein- a-lifetime interview with successful serial entrepreneur Norman Brodsky.

I want you to gain knowledge and wisdom. Knowledge is being able to look at a thermometer, for example, and see that it’s 95 degrees outside. However, knowledge only benefits you when combined with wisdom. Wisdom tells you to wear shorts and flip-flops when you go out in 95-degree weather, instead of your snowsuit. Unfortunately, most training in business accounting focuses on knowledge rather than wisdom. I’ve met business owners who received an A in their undergraduate accounting courses and could define every last item on their financials, yet had no idea that if their gross margin fell below 30 percent, their business would be on the fast track to bankruptcy.

Financial statements measure events that have already happened and establish where you are right now. The great challenge as a small business manager is to gain the wisdom to use these data to identify opportunities, manage risks as they happen, and predict what will happen to the business in the future if you make certain decisions today.