I found myself pondering over Martins first question, the
one at the very bones of this whole course – what is accounting? We have all heard about accounting, have an
assumption of accounting as a facility, but to ask what it is, I found
annoyingly difficult to answer.
An answer did actually come to me quite swiftly, but I quickly
dismissed it as it had nothing to do with mathematical accounting, my answer –
a way to make sense of chaos. I then asked myself, why would this be my
first thought and I realised it was because to me personally that is what
accounting truly is. ‘A way to make
sense of chaos. ‘
In a previous time and place there were businesses I
owned, investment properties, shares etc.
I acquired all of these things because that’s what we are taught to do
as an adult out in the world.
Yet we aren’t taught the importance of the fundamentals of
understanding ‘numbers’ and the relationship they have in our world both
personally and in business, which is exactly why Martin is asking. What is accounting?
For example, I see countless numbers of people being
stitched into SMSF deals that have been over inflated. The marketing team who sells this ‘system’ of
acquiring property through SMSF, also sell the concept of a one stop shop,
luckily for the client the marketing group also has a solicitor on board,
finance broker and accountant. That was
sarcasm with the ‘luckily’! Let me just
add at this point that buying property in a SMSF is not at all a bad thing, it’s
how some of these companies pray on naive people and sell them over inflated houses
in the wrong structures and then simply dump the client when the company has spent
the clients money, which is a bad thing.
At no time has the client asked themselves
the question before us – what is accounting or made some attempt to understand the
figures. Before too long they have just
signed themselves into a debt of say $450,000 and they still have not thought
about what accounting means to them!
This same client then comes to me to sell the same house
they have just bought at a loss (as the original purchase price was actually
over inflated) because they in reality cannot afford the repayments and the
structure and identity that the marketing company set the clients house up in
is actually not legal and therefore must be sold. Time and time again I hear the same words; it
all makes sense when someone who claims to be an expert tells you it all makes
sense. We really all need to have a fundamental
understanding of the basics and then seek the advice of professionals. A big lesson for these clients is, second
opinions count. We simply must understand
the realities of costs to make well thought out decisions on where either our
money goes or the company we are working on, or at goes.
Hence my answer – ‘A way to make sense of ciaos’. There is of course so much more to accounting
then cleaning up messes. Knowledge
through understanding, why we use systems in accounting and how they apply to
our businesses is definitely the key to not creating a mess in the first place.
We need to be able to therefore connect the realities when
looking at a particular company or investment.
Once this connection is made then one can make the best decision for the
company to move forward, whether that be a plan to cut costs over a period of
years to recoup losses or whether it is to make a decision on how to best spend
profits in the coming years. Each decision
can be made clearly as it is based on facts and figures, or the realities and
how they connect to the business.
Martin affirms this with a clear explanation. That accounting is about using information to
help us connect to the business realities of a firm.
I enjoyed Martins practicality throughout this chapter to
the point of where he actually took photos of business signage to concrete in
our minds that businesses are truly everywhere.
Each day we walk past hundreds of businesses without giving them too
much thought, but I find this exercise made me actually walk with my eyes
open. Now I catch myself wondering about
particular businesses. Some I think, how
are they so successful when they aren’t in the centre of town, while others I
wonder if they are struggling with the lease of the main street and what they
do to combat this expense, especially when you see for example a small hairdressing
salon in the main street and you know the lease prices for that area are
extremely high. How do they keep afloat
or profitable? Are they just working for
a wage? I have found myself walking past
various businesses with these questions floating around in my mind.
The section on keeping records hit a sore point with me
as I had previously bought an inexpensive business in the past, as a tax right
off pretty much under the advice of my ‘previous accountant’. Let’s just say that you simply MUST treat
every business with the same importance, whether you own Disneyland or the
local mower repair shop, if you DO NOT KEEP your records up to date and in
order, as in all book work, journals, ledgers everything, you will fail! If you do not understand how and why these
systems are important to your business, you will fail! If you don’t understand hire someone who does
to help you and guide you. Not all
accountants are the same, find an accountant who specialises in the area you
need help in.
Chapter 1 summarises well all of the fundamentally
important aspects we must know about accounting and basic business structures. I still to this day do not have great grasp
on many accounting concepts, but now I pay an accountant to keep things up to
date and explain to me what the realities are.
I would have liked to see examples in the section with
the accounting equations as many of us are dabbling with these concepts in
everyday life and don’t realise it. As we
all absorb information differently, it would have been good to have some
examples for us ‘visual learners’ to better absorb the information.
I had still many unanswered questions in this section –
can we work through this section of accounting equations with some real life scenarios? Will we get to explore these concepts first
hand?
Obviously understanding numbers is essential to being a
CEO of a company but surely there is much more to it? I have this image of accountants or people
from a finance background as smart but with no people skills – wow that’s mean isn’t
it (I can’t believe I actually put that in words) but if we are going to be
honest about our thoughts, then I feel I must put that out there so someone can
tell me why I’m wrong. My theory cannot
possible be correct anyway or how could you run a Fortune 500 company with no
personality and there are many of CEO’s from Fortune 500 companies who were
previous accountants or came from a finance background?
‘Nerd to Normal” I like to call it. Are we going to make sense of all of these
equations by practically working on them?
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