There are two primary types of Accounting for businesses. The first, most common and most foundational is Financial Accounting. Financial Accounting focuses on accurate and comprehensive tracking and reporting of historical financial activity. This results in standard accounting reports such as the Profit and Loss, the Balance Sheet and the Cash Flow Statement and all external reporting.
The second primary type of accounting is Managerial Accounting. Managerial Accounting focuses on business decision making based on the Financial Accounting data. Managerial Accounting consists of a multitude of forward-looking and risk-based analysis tools which should improve a manager’s ability to make intelligent decisions.
I personally operate more in the Managerial Accounting realm which is why I have focused on the decision-making side of business. Please keep this in mind when looking at and using these tools. I am not a CPA and am not qualified to give you Financial Accounting direction. I can, however, help you with the decision-making side of your business.
Many small business owners spend a lot of time on the financial side of accounting, tracking their incoming and outgoing funds. This is a great first step. But to take it to the next level and utilize all of that information we need to go further than just tracking the info. Tracking alone won’t magically make decisions for you. It will help you know what the pulse of your business is, but may not help you calculate what it takes to jump rope or see ahead enough to plot a course and scale the mountain.
So, read through these tools and find the ones which make sense for your needs. What are the big decisions you wish you’d looked at differently up front? We all have them. I certainly do. Those are the kinds of situations you should be thinking through as you look at these tools. Often times that pain could have been avoided with the right analysis. Now, these tools definitely aren’t a crystal ball, and garbage in means garbage out. But they hopefully give you more of the right perspectives to think about before taking the plunge on a new business venture.