Why learning accounting fundamentals is essential to small business survival

Think back to when you were a kid in school. One of the worst parts for most of us? Report cards.Report cards showed our parents how much we were learning about life, society and community. If you’re a small business owner, you’re still getting report cards— whether you realize it or not. They’ve changed from a B or C in history or mathematics to Credit Report, Statement of Net Worth, Income Statement, Balance Sheet and Cash Flow Statement.

 Report Card

Report Card

These reports may not go to your parent, but they are of interest to the shareholders, stockholders, investors, vendors and lenders needed when operating a business. It’s often said that, “accounting is the language of business.” If that’s the case, then what are the grammar fundamentals that make up this language?

  • Relevance
  • Reliability
  • Timeliness
  • Matching of expenses and revenues

These are the building blocks of accounting.

  1. Relevance = the information in your accounting system contributes to business decision-making.
  2. Reliability = the information is accurate and can be trusted in making business decisions.
  3. Timeliness = the information is available in time to contribute to making business decisions.
  4. Matching = revenues and related expenses are accounted for in the same period of time.

One of the most interesting things about learning these principles of accounting is noticing the focus on making decisions. Without relevant, reliable, timely and matching accounting data, you can’t ever know where your business has been, how it’s performed and what it should do.

Without this information, your business cannot survive. A mistake many small business owners make is to think that they’ll catch up with the accounting at some point. For example, you might think you’ve got to get your quarterly taxes filed before the deadline and put off going to the bank.

Most entrepreneurs don’t get into business because of the accounting and for many, it’s the day’s most dreaded task. By automating the transfer of sales information into accounting software, small business owners can free up time to focus on what they love. Using a few minutes of your newfound time to learn and follow the basic accounting principles will pay off big time for your endeavors. After all, you got into business to achieve some pretty big A’s.

Peak Advisers LLC can help you get better grades...call us 303-801-4772.

Bruce Peterka

QuickBooks Consultant and CFO for closely-held companies.