Change Is Good, Unless Its Your Entrepreneurial Financial Accounting Practices

With technology morphing faster than a tadpole in warm spring puddle, its critical that a business change with the times and what the market dictates. Whether it is the automobile industry trying to stay out in front with leading technological and saftey improvements, and the competitors racing to keep up, or the fast food wars and which franchise can deliver the biggest meal for the cheapest price from a drive thru window, change is necessary to stay ahead of the competition. However, there is one aspect of small business that change can cause adverse effects for an entrepreneur trying to move ahead in today's economy; Financial Accounting.

In the early 2000s, several large corporations fell due to accounting scandals. To blame was deviation from the norm, and trying to be 'creative' in accounting practices. Since then the US government has put in place regulations that hold coroporations to a closer standard, but ultimately, its the business owner who must adhere to this rule of standard and unchanging accounting.

It goes without saying how important it is for a small business owner to utilize the services of a qualified accounting. By doing so, the entrepreneur can reduce the risk of waste, excessive taxes, and fraud among other things. For the sake of this blog post, lets take it for granted that all business owners use the services of a financial accountant.

Accounting rules often change over time to reflect changing business models and transactions. But, financial accounting as a business tool should remain stable. Accounting should evolve only after explicit consideration is given to why business transactions should be recorded and reported differently.

Rather than an attempt to school the reader in the details of financial accounting (something we say when we ourselves aren't knowledgable in a certain field of expertise), I will touch on a few of the most basic functions of accounting. It should be clear why these are better static, than in flux.

The General Ledger: This is the main accounting record of a business which uses double entry book keeping. Usually, a general ledger is divided into two sections. The left is for debit transactions, and the right is for credit transactions. Think of the center as the axis of a scale. entries should in a sense, balance. Some of the entries are for current assets, fixed assets, libilities, revenues, gains, etc. The ledger should be kept in balance, ideally. And a good accountant need not be creative to list entries, however, they can offer advice on how to keep the ledger more balanced.

Financial Statements: Sometimes called a financial report, this is a formal record of the financial activities of a business. There are three basic elements of a financial statement. 1) Balance sheet - usually posted at the end of a month, quarter, and/or yearly, this shows the financial condition of a company. A financial statement lists all the companies assets on one side, and libilities on the other. 2) Income Statements, sometimes referred to as a profit and loss statement, or P&L, highlights all activities within a company to make a profit (sales, cost of goods, and overhead, including salaries, rent, utilities, etc.) 3) A Statement of Cashflow shows all cash that flows in and out of your bank account. Not limited to cash associated with buying goods, and selling goods, cash flow statements can include borrowed money to repay loans. This activity isn't part of an income statement, but instead is listed on a cash flow statement.

Improving Business Decisions: We all learn from our mistakes. Thats a part of biological evolution, and financial evolution. A good accountant can point out areas that need adjustment, or improvement, but ultimately its up to the business owner to make decisions that will enhance the business, and stimulate growth of their business. Ask for your accountants advice, but don't be afraid to make tough and savvy decisions.