July 10, 2006
Article I – July 2006
The MC Hammer Approach to Accounting.
Actually, you don’t need to know accounting at all to get a lot of money. You can do different things to make a lot of money and then spend it.So let’s look at how the famous rap star who was once a bat boy for the Oakland A’s handled his money. He made millions of dollars and the money came in the door and his hanger-on “friends” helped him spend the money.
Then when the money was gone, he said, “Oh well, I’m out of money, now what?” And his hanger-on “friends” did not have an answer. Sad, but true. A similar scenario happens to dozens of famous musicians, rock stars and athletes every year. That’s life. Learn from it.
The More Mature Approach to Handling Money.
When the money came in the door, if MC Hammer had an accountant to keep track of it, he would have known two critically important things:
1) He would have known exactly how much money he had and
2) He would have known exactly what he was spending it on.
Most importantly, he would have had some warning before he ran out of money and he could have managed the money to make it last longer or invest some of it so that when he wasn’t making money he would have some more to spend. At the very least, it would have told him when to cut loose the hanger-on “friends” who were helping him spend it.
It’s not hard to make money! Really, it isn’t hard at all. But it is a bit more difficult to take the next step and keep track of what you have, what you’re spending, and how to make sure that whatever method you use to make money, you can keep doing it more and more. The goal is to make sure the money river keeps flowing in your direction.
This seems like a simplistic approach to something as daunting as accounting. It’s not. It really is just that simple. There are a few basic things you need to know about accounting and then you can use it as a very effective tool to manage the money you have, project how to get more, and leverage your money so that it works for you –– not the other way around.
Every time you turn around, someone is telling you that to run a business you have to know accounting. This is partially true. You either have to know about accounting or you have to know about hiring the most competent person you can find to do your accounting.
You do have to have one or the other. To be successful with your business, there is no escape. You have to have accounting involved at some point. But it is not scary, it can even be fun. Trust me, I’m the Queen of QuickBooks®.
Let’s Look at Maureen’s story: Case Study #1.
Maureen was a gifted artist who created beautiful jewelry. At first, she made it for herself and for friends, but then her friends starting sending other people to her to make more jewelry for them. Maureen did not want to spend her time doing bookkeeping –– all she wanted to do was make jewelry and if it sold, that was great, then and all the better.
She was fortunate that one of her friends who loved her jewelry was a bookkeeper named Susie. She, offered to set Maureen up on QuickBooks® on a computer, come to her studio once a week to record the sales and expenses, take care of the reports that the different agencies requested, such as sales tax collections and payments. So Susie showed up once a week and set Maureen up with a sales book she could use to write out her individual sales.
Later, when Maureen began selling to large department stores, Susie set up a system for invoicing the stores and fulfilling the orders. All Maureen had to do was keep making jewelry, and of course, eventually she began concentrating on the design of the jewelry and hired other people to work in the studio and help her make all the pieces. She concentrated all of her energy on design, production and shows. She traveled and made European contacts with stores there. Most importantly, Maureen did everything Susie told her to do about the money steps.
Maureen was lucky, actually, because she got by without knowing any accounting at all. This was because she trusted Susie, and more importantly, Susie was honest. But what if Susie had not been honest and trustworthy? What then? How would Maureen have known Susie was doing what she was supposed to do? Many questions, and now, many answers.
You Have to Know Something About Accounting or You Shouldn’t Run a Business.
Now I’m going to qualify something I told you a few paragraphs ago. It would be useful if you learned just enough accounting to know if the person you trust with the accounting tasks is doing it right.
Fortunately, for you, business owners all over the world have had to deal with this exact situation –– for hundreds of years –– and have come up with a solution for how to do it.
It is called an ACCOUNTING SYSTEM. More good news –– unlike other systems in the world, the accounting system is logical, rigid, includes checks and balances, and has rules.
I call this system the Land of Accounting. If you want to go to the Land of Accounting, you will have a better time if you speak at least the bare minimum of the language of accounting.
Look at it this way. Do you want to walk everywhere you go? Of course you don’t. Walking on the freeway would be dangerous, time-consuming and you would probably never get anywhere.
What is the solution?You want to drive a car to get where you want to be. How do you learn to drive a car? First, you get a car and then you get someone to teach you how to drive it. Next, you have to get a driver’s license. Then, you have to learn some basic rules of how to put a key in the ignition, how to press your foot on the accelerator, learn how to brake, discover how to steer, and then how to drive on the freeway. Plus, you have to pass the test to get your license.
The world-driving-people (The Land of Driving) have come up with some basic rules you have to follow in order to drive on the highway. If you don’t learn these basic rules –– like driving on the right side of the road in America –– you will get killed in an accident when you go out driving your car.
So is it worth it to learn the basic driving rules? Absolutely. Does it take you much time to learn the basic driving rules? No. Is it any harder to learn the basic rules of accounting? Absolutely not.
Now that we are agreed that you do want to know some basic information about accounting, at least enough to navigate in the Land of Accounting, we will learn some very basic, simple to remember language words for accounting.
Next Article – The Basics.
Article II – August, 2006
Available on the Queen of QuickBooks Web site by July 31st!
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