Accounting for Rookies

Permit me to start this article with a confession: It took me more than a decade to make friends with accounting.

Not that accounting didn’t try to become my friend. It kept coming around my freelance business saying that I needed to deal with it. After all, I did need to know how much profit or loss I was generating so that I file a tax return.

So, I hired a bookkeeper to generate quarterly financial reports. Then, when tax time rolled around, she generated a year-end report for me and my tax accountant.

When it came to accounting avoidance, this system was superb. But there was a problem. The bookkeeper’s reports were seldom correct. I had to go through them, line by line, to see which income and expense items had been incorrectly logged or omitted. Little did I know, but my accounting education had begun.

After nearly a decade of scrutinizing the bookkeeper’s erroneous reports, I asked her to teach me how to use the software she used, and she did. And that was the end of our business relationship.

Unfortunately, I was never able to wrap my head around this software. I don’t know why, but I just couldn’t.

Then I decided to change tax accountants. The new accountant was a tough-as-nails type who brooked no dissent when it came to software. I was to learn how to use the accounting software she used, and that was that.

Fortunately for me, it wasn’t the software that I had so much trouble getting my head around. But I still had to be trained in the proper use of this new software. And that took seven months.

The good news is I can now use the software to get up-to-the-minute reports on the state of my business. Here’s an example from Real Life: The first quarter of this year just ended. And I’ve been looking at the financial reports from January through March.

They’re showing that, as compared to last year, income and profits are up, and expenses are down. Hooray, right?

Unfortunately, no.

I’m in one of those situations where I’m making money on paper, but I need, cash, baby! Oh-h-h-h, do I need some cash flow.

You see, I live and work in a 53-year-old house. And it’s an emotionally needy house. Seems that every time I get a few bucks ahead, the house presents me with a nice, big surprise. With a lot of dollar signs attached.

This past weekend, the surprise was noticing that my 1950s-vintage water line is leaking. Replacing it will require hiring plumbing and paving contractors. Which means that Martha gets an opportunity to put her construction and project management experience to work while she acts as her own general contractor.

Since I gazed down at my leaking water line, I’ve been spending a lot of time calling and e-mailing prospective design clients. And one of those calls hit pay dirt in a big way. It was a project that a client invited me to participate in earlier this year.

His funding’s come through, so we’re going to get started later this week. (Guess where a good part of the up-front payment from this one’s going? If you guessed “To the plumbing and excavation contractors!” you’re right.)

So, the sequence has been:

Martha pulls profit and loss statement. As compared to last year, it looks nice .
Then she takes a quick look at her accounts receivable. Hmmmm, that’s where a lot of the income from the first quarter is.
A look at the bank balances confirms her suspicion: A cash flow problem is developing. Time to…
…Make some sales.

Not that I’m the type to wait for some household crisis to come along before I start hitting the sales prospecting trail. I’m always on that trail. Matter of fact, I’ve got a nice list of leads to start calling after I finish this article.

I’m also on the “call for stock photography” list that a local magazine publisher puts out. So, I’m going to be donning my photographer’s hat this weekend. They’re looking for bicycling-related photography, and that’s one of my specialties. And it just so happens that there’s a big bike race coming to town.

So, maybe I should add an Item #5 to the above sequence: Figure out ways to make more money while diversifying one’s income streams. In addition to my design and stock shooting, I’m working on setting up an online store to sell my photography. I used to have an e-bookstore, and let me tell you, it was nice to wake up and find that sales had happened overnight.

Since this article has taken a “Martha had trouble dealing with accounting, she got over it, and now she’s an accounting evangelist!” tone, let’s go back to the rookie level. How do you get started with this numbers stuff? Here are three tips:

Find an accountant and have him or her set up your business books. Be sure that you are comfortable using the accounting software that your accountant recommends. You may not develop this comfort level right away. I sure didn’t. But, over time, it did happen. Be patient with yourself.
Get training in using that accounting software. Much of this training will be of the “how to do data entry properly” variety, and, trust me, you’ll get bored with it in a hurry. (Hey, we’re creatives. Mundane things like data entry tend to make us yawn and fall asleep.) Despite your boredom, stick with the training, because…
…that data that you’re learning to enter is yours. It’s based on what you’re doing in your business. (Much more interesting than an accounting class exercise, isn’t it?) Won’t be very long before you’ll be generating reports and thinking up ways of making business better so that your reports will look better.