Accounting 101

When I was looking at coming on board with this company, I asked to take a look at their books. If I was going to be responsible for all aspects of the operation I wanted to know what I was walking into before I got there. My request was met with confused looks and  some half commitments to make that happen. Needless to say I didn’t see the books before starting, that should have been enough of a red flag to seriously reconsider the position but I was that eager to get out of the corporate world. What I soon discovered is that there really weren’t any books to speak of. They did have Quickbooks and had been tracking sales and expenses but with no structure at all. The good news is that they’d hired a real accountant a few weeks before I started and he was in the process of making sense of 15 months of chaos. By this point it was early November so we decided to go with what we had until January and reset everything at that point.

I am by no means an accountant nor do I have a deep understanding of accounting but I can muddle my way through a profit and loss statement enough to get the big picture. All of the payroll cost was in the same category; from day labor, to the sales team, to the General Manager, all of that cost was all in one bucket. You may ask, “What’s wrong with that?” and if you’re talking about a small operation with less than 10 employees you might be able to get away with it. But when you have 25 employees and over $50,000 a month in payroll you must know exactly where you are spending your money and where it’s being applied. The same was true of most other expenses and this led to the verge of bankruptcy on more than one occasion.

As we’ve created various categories and departments in Quickbooks we can look closely at where we’re spending all of our money and make decisions based on reality as opposed to gut feelings. If you have a company that you’d like to grow beyond 10 employees, spend some money now to get a qualified accountant to set up your accounting system now. It’s nearly impossible to go back and recreate things after the fact and if you can pull it off it’s going to cost 10x more and take years off your life in the process.

Treat this like a business from the beginning and you’ll save countless hours and endless heartache down the road. This will allow your company to grow smoothly as far as accounting goes. Growth has pains no matter what but at least you can focus on the real issues of growing your business instead of getting lost in a sea of numbers while plants need watering and bud needs to be trimmed…

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