Accounting & Bookkeeping

Accounting and bookkeeping are two different subjects.  Accountancy defined:

Accounting, or accountancy, is the measurement, processing and communication of financial information about economic entities.[1][2] Accounting, which has been called the “language of business”,[3] measures the results of an organization’s economic activities and conveys this information to a variety of users including investors, creditors, management, and regulators.[4]

Now, bookkeeping on the other hand is the:

Bookkeeping, in business, is the recording of financial transactions, and is part of the process of accounting.[1] Transactions include purchases, sales, receipts and payments by an individual or organization.

 

Accounting for all that it seems dry is vital for a business to be run well – bookkeeping is what you need to do to get the data in the first place.   Once you enter the data, it’s figuring out how to make it work for you that makes a business work.

Management Accounting

Talk to an accountant and they differentiate between financial accounting and management accounting.  Financial accounting reports on what has happened, management accounting is based on figuring out how to use the data that you have to tell you how to run your business.

Over a decade ago, when I was doing my dissertation I decided to focus on the connection between the accountants and the marketers.  The results were appalling – at least for someone who ‘knew’ what should be done.  These days, things have gotten a lot better – with bigger companies.  Smaller companies though still struggle to get the data in the right place at the right time.  Unfortunately, the information is still just not there.

In the Business

So let’s talk about the kind of reporting you want / need.  At the most basic level, you have sales and the cost of goods sold and the inventory you carry.  Then you have your various expenses that you’d want to track.  Assuming you are all tracking the same information (in the same way), the first step is to benchmark your data as best you can – if your expenses are significantly out of line with your peers, you know what to tackle.

Sometimes, that just means making a few phone calls.  Your internet bill seem a little high compared to everyone else? Well, perhaps a little Google-fu and a few phone calls can get you a better deal.  It’s amazing the amount of leeway a lot of account representatives have to provide you a better deal, if you push them hard on it.

The other benchmark to track is your expenses against previous years.  Has something gone up or down compared to previous years? Don’t just look as a straight numerical value but as a % of your total expenses – sometimes, a change is just inflation; while other times it’s because it’s of new charges thrown in that you were not aware of.

After that you can start looking at fixed and variable costs.  Realistically, in the long-term everything’s variable (rent changes too, just in bunches of years rather than monthly) but it’s worth tackling your variable cost immediately.  Those are by definition things that are easy to alter – while fixed costs often require significantly larger expenditures of time and sometimes capital.  Breaking up expenses so that you can watch for changes in either is extremely important.

Now, let’s talk reporting.  Sure, you could get reporting at its highest level (and that is useful for a bird’s eye-view); but really you want to break things down a bit more.  You want to break up your sales to what makes sense for your business – sales categories would be things like RPGs, Board Games, Miniatures, CCGs, etc.  Same with Inventory and Cost of Goods Sold.  Once you have reporting by that level, you can judge how you are doing based off the margins and how much of each type of inventory you have.  You can figure out turn rates and revenue per square footage.  Without that information? You’re guessing.

What other reports do you need? Well, for retail:

  • Shrinkage (aka theft / weird ass disappeared items)
  • Shipping charges
  • Interest charges (oooh, these are important if you have loans)
  • Cashflow statements
  • Accounts payable / receivable (who you owe / what is owed to you – great for figuring out cashflow and what’s due!)

I’m sure there’s more that’s skipping my mind but this post is getting long.  Take a course in accounting, take a few.  Understand what the books are meant for and what you can do with them – and then ask yourself the question – what do I want to know? You make the numbers dance, but only if you know the tune.

 

2 thoughts on “Accounting & Bookkeeping”

  1. Great post. I’m an engineer, and at my last job got to know our company’s controller quite well, and discovered we both had the same incorrect perception of each other’s work.

    I thought since accounting was based on $$$, it was all black and white, solid numbers, very defined. He corrected my opinions, showing where the numbers get fuzzy and how they can show different things for different purposes (e.g. one set of numbers for getting a bank loan, another for showing to potential investors, and another for taxes).

    Similarly, he thought engineering was all hard science, math and physics – we analyze a problem and come up with a solid answer. I had to educate him on how much of what we do is based off of things unknown or at least uncertain, how we often have to layer assumptions on top of assumptions, and generally end up with a result that says “yadda yadda yadda – probably.”

    It was a very interesting collision of worlds.

    1. Thanks. My dad was a civil engineer, it was kind of fun listening to him talk though he did dumb it down a lot for us.

Comments are closed.