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BEC : Accounting - George

Hey, it’s George here and I guess we need to talk a little bit more. Let me give you a few thoughts and opinions about this accounting business. I know we threw a lot of terms at you and a lot of stuff about three different accounting documents. A little difficult to understand, maybe, if you’re not familiar with accounting, but let me just say this.

Those three documents we talked about, the balance sheet, the income and expense or revenue expense and the cash flow, I would suggest to you, go to the library or somewhere and pick up a basic accounting book, something very simple and take a look at it. They will explain in a little more detail, probably more detail than you want if you’re not an accountant, and give you a visual picture of what each three of those documents look like.

They’re really very simple. They’re not as complex as they may sound if you’ve never dealt with one, but make yourself feel better and go get a look at them. Just take a look at them. You don’t have to worry about all the specifics and the technical stuff that’s in there. Just take a look at them so you know what they look like because these are the documents that are used to manage and control, actually, well both, but particularly manage a company.

As I said in our conversation, on the large scale that balance sheet is very, very important because that tells the world and the government, unfortunately, what the company is worth --what their value is - and that is a very, very significant piece of the stock price. Let me just interject here one thing. ‘Interject’, meaning I’m going to stop my train of thought and put a different thought in here than what I was talking about and that is accounting.

Accounting is a very precise almost scientific process. If you’re not an accountant don’t worry about it. Don’t try to learn all of that stuff. If you are an accountant hey, I respect you and I admire you. Sometimes you’re kind of a pain, but it has to be done. The accounting is precise in that accountants keep track of money that is spent, money that is brought into the company, also keeps track of how the expenses are put on the accounting records, on the books as they call them --the books are nothing more than the accounting records --and most of that is because of government regulations or something that they call GAAP (Generally Accepted Accounting Principles).

Don’t ask me where they came from because they change all the time, but that’s the set of rules that accountants go through. If you look at an accounting register, meaning a list of all of the various things that they use to register money or register expense, that thing is so long that you’d go crazy looking at it and probably wouldn’t understand it a heck of a lot better than I do.

So don’t worry about getting real deep into learning that accounting stuff. Let’s stick with these three statements. Just get yourself a general understanding and a comfort level with them because they are important in business. As I said a big business particularly, that balance sheet is important. The smaller the businesses go, the less important it is because the balance sheet and the net worth really on a family-owned business, for example, all that does is show how much money the owner - the family - should have.

So you don’t need to worry about that.

Income and expense, now there’s one that I don’t care what level or what job you are in in a company, here’s something that you should pay attention to. This is really the one that’s important because it relates to the budget. If you are in a department of any sort in any size of company, I’m going to bet that you have a budget or your department is working under a budget. What that means is from the top level of the company down to your department, no matter how big it is, your department has been allocated a certain amount of funds to deal with. By ‘allocated’ I mean they have on paper said we will allow you to spend this much money this year.

The other part of that, depending on what department you’re in, you may have a budget for revenue or income. Now, that’s usually the sales department or the marketing department that has those kinds of budgets. So if you’re not in one of those you probably don’t have a revenue or income concern, but you will have an expense concern. Meaning that the company accountants’ managers have passed down to your manager a number that says here’s what you can spend this year and, by the way, you can spend it in this fashion. So much goes for employees, so much goes for furniture, so much goes for supplies, so much goes for travel and so on and so and so on.

If you want to make a contribution to a company --and I’m going to take you back to when we talked about resumes, accomplishments and all those things that we mentioned, how you saved money and you implemented programs, here’s where you make your contribution to the company. You find ways to spend less than what your department has been budgeted. If you’re in a revenue-producing department you find ways not only to spend less, but you find ways to bring in more revenue.

Now we’re talking about significant contributions. At the lowest department level there is that’s a big deal. That’s something that’s important all the way up from the bottom manager to the president of the corporation, so get yourself familiar with what is our budget. Take a look at look at it and say is it really necessary that we buy 20 boxes of copy paper every month. How do you find out? Well, go take a look.

How much copy paper is back in the storeroom stocked up that hasn’t been used yet.

Maybe you can drop that down to 18 boxes. Is that a lot of money? Ah, maybe not. Over time is it a lot of money? It certainly is. If you’re in a department where travel is part of your job or telephone use maybe that’s one depending on what kind of plan you’ve got, but there’s a lot of different ways that you can take a look at things and recommend reductions in cost - expenses - for your department.

As an individual just in your own little job whatever it is, you can do something without the boss’ approval even that will probably reduce some of those expenses. So that’s important and that’s a key to getting yourself notice, to becoming the purple cow, to getting stuff on that resume if you decide to move on. Make yourself unique.

Finally, we talked about the cash flow statement. As I said, I look at that like it’s a checkbook. It doesn’t matter what department you’re in because along with this budget that I mentioned on what you can spend there’s also a tracking that takes place as to what you actually spent. So the cash flow statement becomes what have I got in revenue. If it’s just a budget that means that’s how much the company is going to allow me to spend versus what have I got in expense. So you can track and use the cash flow statement as a budget versus expense item.

So we start out with a budget of, I don’t know, $10,000 this month and what did we actually spend. Well, hopefully, you spend less than that and if you can do something to make that happen on a regular basis then you’re going to become a star in your organization and you’ll be one of the ones who can recognize if things are not going the way they should be and expenses are going too high. This also might give you what I would call a big picture, some help in looking at the big picture of the company that you’re working for, particularly if it’s a large company.

All of a sudden you hear all this conversation and directives that come from upper management that say we have got to reduce travel expense by 20%. We’ve got to reduce supplies expense by 10%. We have got to eliminate 20 people. Those are all a result of the studies of these three documents that we’re talking about. So though you may not like it and it may feel a little difficult, maybe you can understand that something has gone wrong; maybe not in your department, but something has gone wrong and the income and the expense are not in balance.

The assets and the liabilities, everything has gone off track here somehow or other and it’s not balancing so they have to reduce expenses. By the way, I will tell you in terms of reducing headcount --eliminating people - most companies, at least in the United States, their biggest expense is people and everything surrounding people, salaries, insurance, taxes, all that kind of stuff. In fact, it is so expense that in most large corporations close to 60% of their expense is people. That’s why when a company decides to cut back on its expenses that’s who gets cut - people.

So go out there, do your part, understand these things, become in larger view of the business and learn everything you can about the big picture so that you can yourself up the ladder.

The End.