And you guys had the nerve to talk smack about me trying to give inheritance advice yesterday. Pfft.
In a recent article entitled Basics of Accounting Are Vital to Survival for Entrepreneurs, the New York Times tells the tale of Bart Justice, an industrial engineer-turned-business owner who decided to start a mobile document shredding business in 2004 after a rash of new security laws. Justice got a loan from the bank, bought a mobile shredding truck, hired a driver and opened a shop in Huntsville, AL called Secure Destruction Service. Sounds good, no?
In its first year, the company had $70,000 in sales. Within four years, the company had annual revenue of $500,000, six employees and two offices. Again, that sounds great but revenue is not the same as equity or net worth, even a non-accounting nerd like me knows that much.
When he wanted to add another shredding truck, Justice went back to the bank and borrowed more money. The bigger he got, the more money he needed to borrow. Somehow, he didn’t understand that this borrowed money was not actually revenue and was, in fact, a liability as he had to pay it back at some point.
“I knew how to print a financial statement from QuickBooks, but I couldn’t tell you what it meant,” he said.
Fast-forward to 2008, when Justice joined a peer group for Christian business owners. “They would ask me questions about my numbers, and I didn’t know how to answer them,” he said. “They told me my business was going to fail unless I got a handle on paying down my debt.”
No shit, Sherlock, did you need a financial professional to tell you that?
Here’s the gist of the article: if small business owners don’t get number-crunching, put the money out and hire someone who does. What the NYT does not have the balls to suggest is that small business owners should stop saying “I hate accounting” because they think it’s still cute and go out and take an introductory accounting class or two. No one expects business owners to be able to pull analytics out of their asses but it can’t hurt to maybe at least understand that you want liabilities to be less than assets to stay alive.
