I’ve had a lot of thought-provoking conversations lately about how to develop the skills entrepreneurs need to be successful. Although building a successful startup depends on luck, timing and passion, it also depends on skill.
#1 on my list is accounting (finance is also important but it’s further down the list). If you’re a founder/CEO you should never leave “the numbers” to your accountant. You don’t need to master double-entry bookkeeping by hand (unless you want to impress a very select group of people) but you need to grasp the fundamentals. For example:
- The difference between profit and cash flow (hint: profitable companies can and do go bankrupt because you pay rent with cash, not profit)
- Budgeting and forecasting (i.e. using accounting to gain control your business)
- The balance sheet (i.e. knowing whether you or your creditors own your business)
If you think this should be the domain of your CFO or accountant, you’re mistaken. Running a business without a good grasp of accounting means you’re flying blind. You won’t know where you’re leaking cash or how to control your expenses. You won’t recognize which products or services make or lose money. You’ll risk running out of money even when things are running smoothly.
Here are 3 suggestions on how you can improve your accounting skills:
- Take an entry-level accounting course at a local business school or an online school. You may not enjoy learning about debits and credits but a semester’s worth of evenings and weekends will buy you a true understanding of the relationship between money and your business.
- If you’re an autodidact, work your way through books like Accounting for Non-Accountants, The 36-Hour Accounting Course, or for true beginners, The Accounting Game. Don’t try this at home if you aren’t a self-studier. Sleepiness will ensue.
- Do your own accounting (under the supervision of a chartered accountant) and prepare your own financial statements. You should be able to make entries, reconcile your bank statements, and make sense of your income statement, cash flow statement and balance sheet, at least for a few months. This is easy with software like Quickbooks and Simply Accounting but you’ll still be learning the basics while gaining a new found respect for your bookkeeper.
The language of accounting is used whenever you raise money, get a bank loan, communicate with your Board, or measure your performance. It’s one of the fundamental skills of being a CEO.