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How to understand your accountant

<i>Illustration: Karl Hilzinger</i>

Illustration: Karl Hilzinger

In my experience, there are two kinds of people in the world: those who understand their accountants – and those who don't. If you're in the former category, move along. There isn't a whole lot else for you to see here. But if you're in the latter category – and I know there are a lot of you out there – read on.

If I had a dollar for every time someone told me how much they wanted to change their accountant, I'd be super rich. And, surprisingly often, the conversation always seems to go like this …

All these numbers may seen daunting to to begin with. But when you read the statement it really is like reading a story. The story of your business. 

Them: "I'm looking for a new accountant. Do you know one?"
Me: "What's wrong with the one you've got?"
Them: "Oh, you know, there's nothing really wrong with them. But they're not really proactive."
Me: "What do you want them to do?"
Them: "Well, they just give me these reports every month and I don't understand them. I just want them to tell me what to do. Not just give me a bunch of options."

This is a classic case of abdication. And it drives me freaking nuts.

Excuses, excuses

I can hear thousands of people say: "I don't have time to get into the nuts and bolts of accounting. That's not my core strength, that's why I outsource to an accountant!"

Fair enough. We're all busy business owners. Of course, you should delegate functions like this to the experts. But there is a HUGE difference between delegation and abdication. When you offload your accounting functions, you still need a strong understanding of how to read financial statements, analyse your cash-flow and create budgets.

If your eyes are already glazing over at that last statement, then I'm sorry to say that your business is only going to go so far. Sure, you can still generate a decent income, but getting a handle on your financial reports is the cornerstone to much bigger and faster business growth.

I'm sure I don't need to convince you that understanding your finances is important in the world of small business. Very few people would argue with this.

Instead, I'm constantly hearing statements like this:

"But I just don't get it. Maths isn't my strong point."
"I just don't have a head for numbers."
"My accountants sends me those spreadsheets and they mean nothing to me."
"I've tried to learn this stuff, but it makes no sense."

Why do smart people say this?

Here's the most frustrating thing. These statements come from intelligent people. And I find it utterly confounding. Because guess what? Understanding your finances is not rocket science. In fact, it's not even close. If you can count the dollars in your wallet, you can understand your financial statements.

When I start talking to some business owners about tax, I can actually see their eyes drift off into another direction and their body language shut down. And that's the crux of the issue. It's not that these people aren't smart enough to understand. They just THINK they won't understand – and so they don't even try.

These are the same people who will then blame their accountant for not being proactive with advice on where to spend their money, what to invest in, or how to steer the business.

While I will happily admit that there are accountants out there who do little more than submit BAS statements and don't take enough of an interest in their clients' businesses, there are those who do. But, even then, it's not their job to make your business successful. It's yours.

They are not at the coalface involved in the day-to-day workings of your business. They aren't privy to the nuances of your business relationships or the interpersonal dynamics that may affect your business direction. The buck stops with you.

It's really a simple two-step process:

1. Get over the fear. The only person who can do that is you. Your accountant isn't responsible for this.

2. Equip yourself with basic accounting knowledge. You don't need a degree. Personally, my recommendation would be to get one-on-one tutoring from an experienced bookkeeper. Ask them to cover the issues that are particularly specific to small business owners.

If you find yourself saying any of the above statements, remember this: understanding finances is easy.

Seriously, go into it with an open mind. Do a simple course like "Accounting for non-accountants" or "Accounting for small business". There are many courses like this available at most evening colleges.

If you're not the "classroom" type, invest in some one-on-one tutoring from a bookkeeper or accountant who can show you the fundamentals.

This is a good time to make a confession. I'm a former accountant. And while that statement might sound like an introduction to a Monty Python sketch, I just want to be upfront about it. However, while I may have done accounting at uni, let me assure you that I've forgotten most of it. It was a lifetime ago.

I could not tell you how to calculate fringe benefits tax on a recent meal I had with a client or when to modify my cost base for capital gains tax purposes if my life depended on it. Hell, I sometimes have trouble filling in my BAS statement.

So I'll admit, there isn't a great deal left in my knowledge bank on accounting methodologies. And clearly, accounting wasn't my forte either, which I why I became a writer. However, the gift that background gave me was that I know I have no fear when faced with a balance sheet or financial report.

All these numbers may seen daunting to to begin with. But when you read the statement it really is like reading a story. The story of your business.

If you find yourself procrastinating over reviewing the reports your accountant sends you, or if your eyes glaze over whenever the topics of accounting comes up, then GET OVER IT or you will never reach the  potential of your business.

twitter Follow Valerie Khoo on Twitter @valeriekhoo

15 comments so far

  • I don't want to sit through boring courses and seminars about accounting! The government should make a range of CD or internet based programs to suit various types of small business. It's the government's fault not ours that their laws are such a mess. Depreciating every different thing for different amounts of years is just stupid. Hiding information so that ATO employees don't even know where it is, handing out books with pages full of gobbledegook, the government treats the whole area as a joke, they just keep piling the gags on. i don't think it's funny, why should I do a course, you admit yourself you can't remember any of it.

    Date and time
    May 03, 2012, 10:05AM
    • A bit funny to argue its easy to understand financials and then to argue how hard it is! But that aside its important to understand why sbowners dont rely on their accountants P&L and Balance Sheet: 1. By the time these are ready the figures are 3-15 months out of date so they are historical and not much use. 2. Often not all income especially "cash" income is not declared. 3. Their accountant has used all sorts of legal tactics to minimise tax and maximise the owners personal benifit and minimise profit. 4. How do you account for the benefit of a Porche, BMW, Mercedes in the business? 5. Even small business courses do not cover how to make real sense of the P&L and Balance Sheet - interpreting these document is controversial - the saying is "Profit is an Opinion!" 6. Many sb owners make excellent profits and become very wealthy without even looking at a P&L and B/S. They have other ways and very effective ways of maximising their personal benefits. This is not to argue that financials cannot be useful and valuable, but its often not easy - just ask any business consultant, coach, mentor or tax auditor.

      Date and time
      May 03, 2012, 10:22AM
      • @Notsoeasy - You are the exact target audience for this piece! If all you ask your accountant to do is lodge your Bas and Income Tax statements, that is all you will get.

        I'm a registered Bas agent and one of my clients is a start-up who needs a quick turnaround for month end reporting. As he has asked for this, I can produce his P&L and cashflow within 2 workings days from month end (and I work full-time as a wage earner, this is an after hours gig!). With accountants and the like you get what you ask for and you get what you pay for!!!

        In response to your other points, 2. all income should be declared, cash or otherwise (the ATO is cracking down on this), your accountant isn't in your shop watching your cash register every day. 3. Yes, we do, that's our job! I'd be disappointed if they didn't. We didn't go to Uni and complete CPA programs to not minimise your tax. 4. You account for this via one of the 4 methods stated by the ATO, and you use which ever is most effective for you. 5. The answer is Google. There are educated people who blog this stuff, if you can't find it, email me and I'll start one. 6. Agreed, there are other ways to judge how successful a business is, but why not get a comprehension of the figures and use them as well? I find quick kpi's and ratios work fantastically for this and can often be produced quicker than full financials.

        But seriously guys, use your accountant to their full potential, most are more than just bean counters...


        Two Bites Bookkeeping
        Date and time
        May 04, 2012, 11:27AM
    • It just shows that the best accountants are the ones that are able to communicate with their client.

      Date and time
      May 03, 2012, 12:59PM
      • "If you can count thedollars in your wallet you can understand your financial statements" WOW. I'm not sure what your background is Valerie but I know plenty of accountants who can't understand financial statements they produce let alone how their poor clients cope.

        Date and time
        May 03, 2012, 1:04PM
        • Why shouldn't your accountant explain this stuff to you? A good accountant should not only be able to explain it, but to clarify how they have come up with their reports - what information used, what needed. And why shouldn't they be proactive in suggesting improvements and alerting you to trends.

          In my experience, private accountants are quite loathe to actually discuss reports with clients, it's just sign here. I learnt all my financial report knowledge working closely in house with financial controllers, as they had a better understanding of the business working in it and were more willing to share and explain their knowledge.

          As for tax, after paying private accountants through the nose for poor results (ie failure to minimise and take advantage of entirely legal deductions), I took my personal tax to a well known franchise who, at minimal cost, have been simply brilliant in getting me on track and keeping me there - and recommending a private accountant for the other stuff they don't do.

          Date and time
          May 03, 2012, 1:28PM
          • Thank-you .bg & Notsoeasy, you have just proved Valerie's article is right, you are both sticking to your excuses. I do the financials for a small business. What you should both understand is it's not up to you to understand taxation law that's why you have an accountant, but more importantly it's about understanding you in comings and out goings, it's not all about profit. My simple piece of advice to both of you is ask questions, i did and i've saved a company a bunch, something the accountant would never have been able to do as they don't work here everyday. The more questions you ask the better your understanding of everything becomes. Also Notsoeasy, your historical figures are VERY important never disregard any of your companies financials. If your figures are so out of date you need a new bookeeper, our company records are kept up to date daily!!! Get proactive and use the internet to learn, ask your accountant questions, stop making excuses and be a better person. If your not good at something then it should be your prority to get better at that, that's my philosophy. BTW i started my job with no understanding of accounting and it has been up to me to learn, we all have our choices.

            Willing to learn
            Date and time
            May 03, 2012, 3:51PM
            • A trucking company went belly up this morning. A ford parts supplier went belly up recently. Perhaps if they paid closer attention to their PL, cash flow, projections, costs, risks etc they may still be around and people may still have their jobs. ANZ, Optus, Qantas are retrenching staff because they do understand these number. They will survive.If they didn't understand then they too may be at risk of going backwards and failing.

              The same logic can be applied to households. They need to be managed as a small enterprise. Understand or suffer the consequences.Knowledge allows for informed decisions. Staying ignorant results in knee jerk reactions and normally poor decisions. Changing economic and market circumstances will ensure failure.Luck will eventually run out.

              Date and time
              May 03, 2012, 5:53PM
              • What a complete load of crock!!!! Accountants only know numbers and equations and thats about it. They lack insight and vision and sometimes lack a pulse. One thing is for sure is accountants probably need to get out there and understand their clients business a bit more so they can give some solid advice. The ATO on the other hand is the joke of the freeworld. They are completely inept on advice and information. Ring them up and they can't tell you anything right. Ask them where to get info on thier own website and that is way beyond them. They are just like the police force, revenue hunters. If they were running thier own business they would have called in the administrators along time ago. Completely incompetant and grosely arrogant to australian tax payers needs. Accountants and the ATO, what a joke for small business!!!!!!!!!!!!!!

                Date and time
                May 03, 2012, 6:34PM
                • okay guys. Sit down with your accountant for 5 mins, study your P&L. This is your net/ gross profit/ loss, purchases/ expenses - you can do it!!

                  Date and time
                  May 03, 2012, 7:51PM

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