Opinion: Balanced budget begins with financial audit

Should you choose to learn basic accounting, you will have a skill set that is in high demand by employers. You also will have the tools you need to manage your family fortune – and maybe start your own business. No bad thing comes from learning business and accounting basics.

Here’s the key for moving from rookie bean counter to rockin’ money maker: your commitment.

This stuff is not that hard. You can do it. Figuring out what the accounting words mean is more than half the challenge. Basic accounting is a simple, logical system. You may even learn to love it.

You will need some help. Find an accountant who will teach you how to handle the bookkeeping and who will check your homework.

The financial audit

If I were a betting woman, I would bet $1,000 that the current state of your financials is a slinky-knot mess. The only way to know is by doing a financial audit. This lets you know the current financial situation and what needs to be addressed to get to your “known financial position.”

Here’s how to do the financial audit:

• Run a balance sheet and year-to-date income statement dated the last day of the most recent fiscal year.

• Compare the balance sheet total to the balance sheet section of your tax return. As of the last day of your fiscal year, your accounting system balance sheet should match up to the balance sheet on your tax return. Most of the time, your accountant will make year-end adjustments – for depreciation or to record the purchase or sale of an asset. It’s up to you to make sure that your financials reflect those changes. If you don’t match up – assets, liabilities and equity – make a note of it on your financial audit spreadsheet.

• Go through the most current balance sheet and income statement, too. Next to each account, indicate whether the account is OK or needs to be fixed. If you don’t know an account is accurate, put a question mark next to it. This financial audit serves as your “punch list” for getting to KFP.

For example, do you balance your checking account every month? Does your accounting program bank reconciliation balance? If so, terrific. Mark the checking account as “OK.” If not, put a question mark next to the account on the financial audit.

Bit by bit, you can work with your accountant to nail down the accounts. As the bean counter, you are responsible for the accuracy of the financial reports.

Chart of accounts

Work with your Bean Team to create, refine and streamline your chart of accounts, the complete listing of all company accounts. The chart of accounts is the framework that supports the entire accounting system.

• While your accountant’s input is desired, don’t craft your chart of accounts with the primary goal of simplifying your tax reporting. Your accountant has a tax software program that makes it easy to do your taxes. If your chart of accounts aligns with that program, it makes it simple to plug and play for Uncle Sam. However, direct your accountant to accommodate a chart of accounts that reflects your business and gives you the data you need to make better, faster and more profitable decisions.

• Keep it simple. If you are not going to use the detail to make a decision, don’t bother tracking it on a day-to-day basis.

• You can always use a columnar pad and a pencil to track additional information. Just because you have an accounting program doesn’t mean you have to use it for everything. In the words of Gail Gudell: “Don’t use a backhoe when a teaspoon will do.”

Change the outcome

Once you start operating from KFP, you might notice that you are not making any money. You might notice that you have a boatload of debt. Well, the only way to make more money is to charge more than it costs.

Once you know, you can change. Change your selling price. Change your operating systems. Notice the effect those changes have on your financial position. Put a budget together and compare actual to budgeted financial performance on a weekly basis.

If you have the energy and commitment, then all you need is information and experience. You can do this. And you will be well-served by this skill set. It’s time for you to play in the big leagues. May this be your breakout year.

Ellen Rohr is an author and business consultant who offers systems for getting focused and organized, making money and having fun in business. Her latest book is “The Bare Bones Biz Plan.” She can be reached at ellen@barebonesbiz.com.[[In-content Ad]]