Why doing your own accounting matters and why everyone can do it

The University of Technology, Sydney has launched a series of one-day courses on accounting fundamentals to equip start-ups from non-financial backgrounds with the ability to manage their businesses.

The courses will cover understanding company financial statements, financial statement analysis, and accounting for non-accountants.

Course presenter and head of accounting at UTS Business School, Peter Wells, says it’s critical all business owners, and ideally every employee, understands how accounting works.

“We keep score by accounting. So if you run a business you need to know the scorebook and be able to share it with their bank, their investors and their team,” Wells says.

He shared with StartupSmart the top three lessons those new to accounting discover.

Don’t confuse cash and profit

Describing this mistake as particularly common for rapidly growing businesses, Wells says many new businesses can mistake cash rolling in for profit, which becomes problematic when they invest money they’ll need desperately when the bills arrive.

“One of the major reasons small businesses fail is because they don’t understand their own accounting and cash flow,” Wells says. “You can’t run a successful business one week at a time, you need to learn how to budget properly.

He adds the major budgeting error a lot of start-ups make is not understanding how much their product or service takes to create.

“A lot of people don’t fully understand the cost of producing their product so they under-price and don’t control their costs. What inevitably happens is they end up working for no money or even worse at a loss,” Wells says.

You should do your own accounting when you’re starting out

Resist the temptation to outsource your accounting and forget about it says Wells. Especially for new business owners, doing the hard yards of your own finances will inspire useful insights.

“For any small business person starting out, you need to do your own accounting so you can see it yourself and really understand how the business is working, or if it’s not,” Wells says, adding accounting packages help take a lot of the confusion out of the day-to-day management.

“All businesses will need to a double-take now and then on what they’re spending and where,” Wells says. “Do it yourself so you can know what to focus on.”

You don’t need to be good at maths to be good at accounting

Wells says the biggest misconception holding people back from mastering accounting basics is the notion they need to be good at maths to understand how it works.

“One of the great fallacies is that people who are good at maths are good at accounting, or you need great skill at maths to understand. But accounting is essentially plus, minus, multiply and divided by,” Wells says.

While the more high-end accounting requires more maths skill, the basics can be mastered by almost anyone says Wells.