Success at anything, at the very least requires an understanding of the fundamentals. One of the fundamentals that are the most misunderstood in my view is accounting. The use of numbers and financial strategy is very low amongst Australian small and medium businesses (SMEs). As a result, financial performance of the vast majority of SMEs is poor.
Warren Buffet, one of the most astute investors and wealthiest people on this planet has been quoted as saying ‘the language of business is accounting’. I know accounting is not sexy. I know that on the most part, business owners do not jump for joy at the prospect of learning about accounting.
But consider this: would you fly in an aeroplane if the pilot could not read all of his or her gauges and instruments? Would you fly in that aeroplane if the pilot did not understand what all the dials and levers were meant to do? It seems kind of stupid to even consider flying with a pilot like that.
Why then, do the vast majority of business owners put their hard earned capital at risk by not even having one clue about numbers and accounting? The vast majority of business owners are simply climbing into their aircraft and attempting to fly without a clue. It is a recipe for disaster.
So how do businesses survive? The economics have changed considerably over the last six months and surviving, let alone thriving is about to get a whole lot more challenging.
We have experienced some exceptional economics in Western Australia over the last 7 years. The economic cycle is doing its usual thing. Up turn, then down turn, then up turn and down turn and on it goes. This should be no surprise, as history in the economic sense does repeat itself.
So now we face a different set of economic circumstances to operate in. You will now need to know more than ever how to use numbers and accounting to your advantage. You will need to know what is working well and specifically what is not working well.