Transparency

Lookin' Outside My WindowAccountants like to talk about transparency, the principle that financial statements should give a clear and accurate portrait of a company’s performance.

Accounting is important because you need a transparent view of your business’s performance.  What are your sales?  Your expenses?  How profitable is your company?  What assets do you own?  How much cash do you have on hand?  How much do you owe?  Is your performance improving?  Too often, and especially in small businesses, I see and hear about entrepreneurs who “wing it” and can’t answer all of these questions.  They’re driving with their eyes closed.

Almost anyone should be able to keep state-of-the-art accounting records appropriate for their business, with very little training or effort.  These records will allow you to quickly look up and know all of the information that you need about your business, helping you make smarter and more profitable decisions.

I’ve written about two easy tools for keeping your own records:

  • For a very small business with few transactions, I developed a simple template on Google Docs.
  • More advanced companies should try the open-source program GnuCash.  Free download here.  Quick demonstration video here.

Getting a transparent view of your business requires more than keeping reliable books.  It also requires understanding your books. Keep close tabs on your profitability, solvency, liquidity and productivity, and work to improve them.

[Lookin’ Outside My Window by dlco4, on Flickr]

3 thoughts on “Transparency

  1. I wanted to change the column headings so that I can add different types of expenses or different types of incomes (besides Sales.) When I tried to rename one of the existing columns as a type of income such as “Membership Dues” the table wouldn’t balance because that column is configured as an expense (negative amount). How can I change that or create another income column? Thank you.

    • Sulma,

      This was actually intentional. If you’re using the spreadsheet in the US, you might want to include all of your different types of income under Sales. This way, the spreadsheet will tie in more easily with your tax return. If you have so many transactions and so many different kinds of income that it would be difficult to break down the income into its components later, then you should use a real accounting software package. Try GnuCash, it’s free.

      Mark

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