Accounting for the Numberphobic: A Survival Guide for Small Business Owners

One of the most important things I do is to counsel people on the lingo their financial people and accountants use so at least they know the basics. Accountants, though, are historians. Their function is important because the past informs the future. But by the time you get the numbers from the accountant, it’s too late. While you can learn a lot f

My response to the client’s complaint was this: The client is paying for the doctor’s specialized knowledge. In other words, the client is paying for the years of experience, not the hours to complete the task. Service providers need to know the value of their expertise, and communicate that effectively to clients.

A going concern is a business that is self-sustaining with predictable revenue streams, reasonable expenses, and adequate cash levels to pay its bills. Building such a business must be the goal of every small business owner/manager.

What’s the moral of the story? One very large client can rattle your gross margin, cash flow, and profits to the core. Don’t try to get the one big client and think life will be easier. It rarely works that way, especially when a business is small. The business takes on a lot more risk when it sells to large clients. It’s also harder to control gro

Businesses do not exist to break even or to show a loss for an extended period of time. If a business serves customers superbly, offers creative solutions, and takes on risk, it should be compensated for that. Positive net income is the key to staying in business.

Adequate gross margin is key to running a profitable business and must be measured every month. The Net Income Statement is the only statement that tracks this. Fixed expenses don’t change with sales volume. Keep these at a minimum and no more than 20 percent of net revenue each month.

Will the unit cost be higher? Yes. It’s okay to pay more per unit as long as the new COGS is low enough to ensure at least a 30 percent gross margin on those items. You’re essentially paying for the time you’re saving. I believe it’s worth it and will arm-wrestle any CPA who says otherwise.

As the distance between the net revenue line and the dotted variable expense line gets wider above the breakeven point, the business becomes more profitable. That’s when net revenue is growing faster than all expenses. That’s what every business should strive for. The

Take it from the success stories; don’t let optimism or your ego goad you into increasing any kind of expense too soon. Save money and you’ll buy time.