Angie Mohr - Bookkeepers Boot Camp: Get a Grip on Accounting Basics

The statistics are mind numbing. In North America, 80 percent of all small businesses started this year will be gone in five years. Of the lucky 20 percent to have survived, another 80 percent will be gone in ten years. Thats a whopping 96 percent failure rate over ten years.

Would you start a small business if you were told that you have a 96 percent chance of failure? Not many people would. But every day, hundreds of people think they will beat the odds. They may be former employees, students, housewives, or others who have never had any business training but are sure that their product or service is so fantastic, so completely unique, that they are destined to succeed.

These are the people who walk through the doors of my accounting and consulting practice every day. They want to know how to make a lot of money, how to leverage their businesses, how to go public. I begin to talk to them about their plans for bookkeeping for the business (Oh, my wife will sort all that out), what is in their business plan (Oh, Ill pull one of those together if the bank is looking for one), and what their break-even point is (We dont have to worry about any of that; this product is going to sell millions!). They want to fly before theyve learned to crawl. They do not understand that business management is a separate skill from doing whatever it is that their business does. For example, hairdressers think that because they are good at cutting hair, they can own and manage a salon. Lawyers think that because they are good at putting together a brief, they can run a ten-lawyer law practice.

Am I being hard on small business? Not at all. Small business is the engine of the world economy. Even Microsoft and Ford started in someones basement or garage. However, people all over the world have an idealized and unrealistic view of how to operate a business, and most discount the importance of the basics. With the advent of bookkeeping software such as Simply Accounting and QuickBooks, many entrepreneurs have come to believe that these programs will magically do their bookkeeping for them. Because these people lack basic accounting skills, they are unable to analyze their business results and have no idea whats working and whats not. Its like driving a car in a foreign country where they cant understand what the road signs are telling them.

Joe gets up when the alarm goes off at 5:45 a.m. His once-tiny plumbing business has grown substantially over the last year, and Joe always feels as if hes in catch-up mode. He knows he has a lot of work to do today. A presentation will be made to a potential customer at 9:30 a.m., a meeting with his banker has been set up for 11:00 a.m., he must personally pick up a product from a supplier at 2:00 p.m., and at 3:30 p.m., he must deal with a cranky customer who is not happy with the quality of Joes work.

Joe makes his daily rounds after stopping at Starbucks for a double hit of espresso. He telephones his wife, Becky, from his cell phone to remind her to pull the invoices to discuss with the customer that afternoon. Becky stays home and helps Joe run the business. She answers the phone, does the filing, and deals with the mountains of paperwork that the business generates.

At 6:00 p.m., when Joe has finished his rounds for the day, he pulls the truck into his driveway, slings his jacket over his shoulder, and checks in with Becky. He tells his wife that the banker wants to see financial statements for the business to see if they are making money. Neither Joe nor Becky really knows if they are winning or losing. Becky adds up all the receipts at the end of the year for the income tax returns. As she tells him about the phone calls she received during the day and the bank statement that appears to be wrong, Joe digs through his pants pockets and pulls out piles of crumpled receipts: the days record keeping. Becky tries to put them in some semblance of order, wondering if theres a better way to track the business results.