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The black hole of your accounting books

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I always thought it would be a good Halloween costume to go as your accounting books.

I've worked for over 18 companies in 20 years as a contractor or full time, in various industries of various sizes and this I know of every situation I come across. There is always a black hole in the accounting books. 

That means this - there is a part of the books where you move things to you just can't deal with. That can range from new sources of income that you haven't established a relationship with, to stock variances from costing out products, to accounts receivable you're embarrassed about, to certain benefits no one else needs to know about.

But I'm ideally preaching to a small business crowd, or better still a micro business crowd starting on their feet and wondering why they would bother to "account" for things other than cash in/cash out.

Why you need to account for your business.

You are going to make a choice on how much you want to grow. For as difficult as it is to make it work at the beginning, it is twice as difficult to maintain growth. I labour on about this point in personal development - if you don't set the stage (space element) for a strong foundation in form and structure (earth) then the other elements (inspiration, clear decision making, fluid relationships) will find it difficult to find their flow. 

It is a shame that accounting has become synonymous with taxes. In my opinion that is minor consideration. I mean that tax rules, for smaller businesses, are an established outline. Once you know the rules, you can create bookkeeping to account for items in a particular way. But that's pretty much it - get together with your tax accountant once/twice a year and confirm you're getting the deductions you need. All good.

Management accounting is the sad lonely cousin waiting to get her braces off to be prom queen. Her role is to review and create information that FEEDS BACK to you whether you want to continue operating a certain way. She tells you if that workshop you regularly do actually makes money, or whether the time it takes to organise so many people, and their issues and the back and forth with the venue actually made you $15/hour in the end. She will show you that you might be spending too much time cooking that herbal skin formula for the market stall, that, in the beginning made you a few bucks because you had time to spare but you can't seem to grow from that space. She might also determine whether, from your mix of products, one seems to be taking off better than the others and paying for the rest of the products to exist at all.

Profit and Loss is the supermodel of reports and what most folks starting out become familiar with. It's a good place to start. Banks and other institutions like these kinds of things as it become standard reporting and they don't need to get to know you to analyse how they believe your business is functioning.

But to get into the mode where you move in a particular way and report on that movement in a regular fashion to produce a product/service that's a fine tuned instrument - that's creating a relationship of the numbers to your passion. 

Even small needs a system.

It's a decision you get to make. No doubt there are businesses that work well dealing only in cash. It means you get to hide things and avoid taxes. It might mean you seek out vendors that do the same which is another choice. It means finding places to put the cash, runs to the bank, asking employees to work for cash under the table, and educating your customers to come prepared. 

For most of us this is a fine place to start. Doing massages out of your home, selling haircuts to friends, selling your crafts at the local market. 

But how do you know what works? And when you grow there will feel like a lack of control of how the business is operating if you're cash only. 

Example - I worked for a company that did ok, they had had steady enough growth over the course of their operations to not really spend the time to look inward. When hard times hit and the business was forced to look at themselves, I looked into all the "black holes" of the company to see how they were operating. We cleaned areas up and kept the business afloat. We did a better return that year of clean up than previous years. The company could have made so much more money the previous years but there was no proper accounting system/review of operations because they didn't set themselves up in the beginning. They grew, made enough money and left it at that.

I will also relate it to your well being. Ayurveda is about prevention. If you follow certain natural laws according to your constitution, you will fall into the middle road gap where things generally don't get too bad (your organised accounting system). However, if you burn the candle at both ends, for instance, it might work for a certain time and then when the body collapses you are at the mercy of expensive specialists who might give you a bunch of business street talk to confuse you and charge you lots of money to tell you to just get rid of your employees (your uterus). And then leave.

If you are a business owner, you MUST know how it operates. If you are in connection with your body, you MUST know how it operates. And be in PARTNERSHIP with an external consultant. Never give your money power over to anyone unless you have created a review situation with them where you can oversee their work and understand it from an internal controls system.

You are the black hole of the business.

If you're large enough you can find some department or some legacy to shift blame. Things take a long time to unravel when you become a behemoth. But when you're small fry, it's personal and that's a good thing because when you change, the business changes with you according to your pace. When you're much larger you need a strong robust corporate culture that needs to act like a person that employees want to personally emulate in order for the change to take en masse.

If you function from a state of anxiety and erratic behaviour, your business will mirror the same, producing a sense of randomness about your affairs. You will most likely not create systems to record information and then find yourself scrambling. The largest illusion we found ourselves in, in the last couple hundred years, is the separation of your business from personal - the advent of the industrial age. The illusion being that the mechanics of an operation could be distinct from the operators. Mr Einstein says it ain't so. Whomever comes in to dictate the intent of the operations will create a certain follow through. This is why is can be difficult to carry on the vibe of a company when the original owner leaves. Personally, that was why I never worked for a buy/sell company. A company that had strong leadership + strong vision = my clear personal growth. 

I have been fortunate to have so many examples to draw from and I started to be able to see where the issues lay when I found the "black hole". When folks asked me later how I managed to make such a wild transition from accounting to Ayurveda, I would express there was a very clear correlation. The black hole was the disease. From that disease I could see which departments were stuck/lacked a kind of flow back into the rest of the organisation. I saw excess reporting and excess meetings (obesity), I saw reactive management (nervous disorders), and leadership by tantrum (fever and inflammation). I saw the mind (executive board) not listening to the pain body (the employees). And so on. 

A company is considered it's own person, legally, for a reason.

So here's a tip, both from my accounting and holistic background, the more you invest in yourself, the easier both aspects of your journey can become. Similar to childhood, if you don't have a supporting environment to grow in, you find the adaptation to stress based in emotional immaturity. Your sense of clarity and vision might be fine in the initial stages when an idea (like a romance) is new. However, starting a business becomes a matter of personal growth and it's so much easier, like a business plan, to have an action plan to fall back to when things go topsy turvy. And more than that, you get to effect the lives of many others by osmosis. When I have been asked by women how they can help their partners to transform a habit, my answer is always the same - transform yourself and watch what happens. 

Without a doubt - you will effect more people by reorganising your own sense of balance. Top down approach.

Ideas in Action.

1. UNDERSTAND FLOW

I'm old school. I just think there's some kind of connection between using your hand and working out the flow of things. I know the idea of accounting seems to be locked into spreadsheets and such and sure, for bunches of numbers, it's a good tool, but to understand flow I feel there is a better way. Design principles can come in here - use post-it notes, use a whiteboard, use a large piece of paper and draw yourself a map of the activity you're analysing. Understand where things come from and where they are going to. Mark stuck spots with a red cross. The intention here is to be a definitive as possible. The devil is in the details.

This is where you might find your black hole. I'm curious if you see a self reflection in it.

2. HAVE AN OVERARCHING STATEMENT OF INTENT

Now you have your map, all the little activities need to be going somewhere, like ants. I like watching how ants seem to have a consistent rhythm in what they are trying to do. I don't think you ever see an ant stop, scratch it's head, and go "hang on, what was I doing?" They are little soldiers and there is a beat in their head.

Write the point of what you're doing as a big statement (write it at the top of the paper) and then put little statements on each part of the activity and see if it matches up. Your little activities are ants - they should just do. Small things should add up to one big thing.

3. Quantify feedback

Here's where it can get creative. Everything can be measured but the way of measuring can differ. 

  • You need to make money so figure out the cost to make and sell. 
  • You need happy customers so you can determine whether their expectations were met.
  • You need happy workers so you can  evaluate whether you are happy with each others' offer.
  • You need to be happy. Yep, this might change often. There's no one above you to review you so I suggest a self review.

4. Get external assessment/opinion

Even if you're small fry, getting an accountant to bounce ideas off, even if it's for a one off is worth it. These days you can do everything yourself when you start out in business, some you might be better than others', but we all know the difference of professional help. It makes things quick. A tax accountant does not know how to run a business as effectively as a management accountant. And it might not even need to be an accountant but someone that can see things you might not. The focus on marketing is super important these days, for sure, but I have also seen the ramifications of growing too fast and not knowing how to manage the day-to-day affairs and throwing the owner into a state of panic and adrenal fatigue. And bookkeepers are generally taught to add the numbers to balance and then present to the tax accountant. A very handy tool for government reporting but not an assessment tool - know the difference. If you're a sole agent or even in partnership, get together with someone outside the venture to add perspective as a regular activity. 

5. Don't stand still

The greatest connection I made when I ventured into the Ayurvedic healthcare realm was to understand our dynamic nature and how unproductive set diets were. The seasons change and food grows at different times of the year. We change regularly - our mood, energy levels, sense of clarity, emotional stability. If the hypothesis I'm claiming that a company mirrors human behaviours then it would stand to reason that change should be linked into the overarching statement of intent.

I was working in the US at a most fortunate time, during the housing market collapse, when industry screeched to a halt....for some. I noticed the larger, set-in-their-ways corporations unable to move quickly to the vibe on the street and a lot folded. Old fashioned restaurants that refused to move with the times folded. For the first time in retail history, no one really cared that you had a sign that said the year you were established. You could not sit on your laurels. Newer, fresher ideas that were pliable and adaptable and had more humanity seemed to be thriving.

The new times ask you to be always in a state of awareness, to listen and like a sand mandala, let go quickly and move on.

The new times are rewarding work with personal integrity as marketable, more than ever. People crave inspiration (Dan Pink's "Why").

The new times do not separate personal from business.

 

 

The Prettiest Girl in the Room Syndrome

Mistaking hard work for progression- the mode of work according to your body type