WHERE DO WE BEGIN?

First, we must learn to understand financial accounting. There are three ways to go about this:

Review the sample financial statement in this book and follow the step-by-step comments.

Enroll in an accounting course for owners and managers of small businesses offered at your local university or college. This is the most time-consuming and will take some real dedication on your part.

The third method is the easiest and the least time consuming. Every time financial statements are prepared, have your accountant explain them in detail.

Begin with this simple question, "Now that you've prepared this data, how is the information going to help me and my business?" At this point, they will either panic because they don't understand the statements, or they will proceed to explain their meaning.

Don't be embarrassed. If you don't understand, ask questions; let your accountant know you don't understand. They are schooled and trained in the meaning of financial statements; you're not! So don't be embarrassed to ask questions. If they’re good, they will take the time to explain the statements in a manner you can understand. If they can't explain them in a meaningful manner, seek help from someone who can.

HOW OFTEN?

Every business owner should review financial accounting once each month. This data should be compared to your forecast (yes, I said forecast, not budget; more later) on a line-by-line basis. If there is a problem getting the data monthly, get it done at least quarterly.

In every case where I have seen a business person receiving monthly statements, the first comment has always been the same: "I don't know how I operated in the past without this information."

I've heard that time and time again.

Do not have an outside accounting firm prepare monthly statements; it is too expensive. Have your accountants train your bookkeeping personnel on how to prepare the company financial statements. With the book-keeping software available today, getting regular financial statements is a piece of cake.

Let your accountants confine their activity to a cursory review after the bookkeeper has completed the major portion of the work. This should reduce professional fees substantially and provide you with much-needed data.

If you do not have bookkeeping personnel, have your accountants recommend a competent freelance bookkeeper. This service is consid-erably less expensive than using professional accountants to do your bookkeeping.

Remember, you are trying to develop a system to provide financial data regularly and to develop your skills to interpret this data.

Understanding financial statements is not enough. You must have a management information system that monitors financial statements, cash balances, future cash needs, accounts receivable, and inventories.

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