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Accounting Mysteries For Small Businesses

October 23rd, 2019

Of every 10 businesses that first opened their doors Monday, 5 will be gone by 2024.

The reasons for the failure of startups are as varied as the businesses themselves, but high up among the causes is a lack of understanding of basic finance. Too little capital and miscalculating pricing are two of the most common causes of small business failure.

Besides these two serious problems are those rooted in a founder's lack of basic accounting principles. Here's one: Having lots of cash coming in doesn't necessarily make you profitable.Here's another: You can be profitable even without much cash.

If those seemingly contradictory statements are hard to get your arms around, read this 3-part series on the "Five Financial Mysteries for Business" by Forbes contributor Jim Blasingame. It won't make you an expert. Instead, it will warn you off some misguided ideas you may have about how business finance works.

His series should also be required reading for every business accountant and accounting student. Not that you'll learn anything new about cash flow and accrual and the like. Rather, it will help you know what your clients likely don't know about the financial side of their business. And that's a good place to start when a new business owner walks in, glowing over the only financial report they care about: A positive P&L.

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