The Truth About Accounting
Why do you have to do it this way?
Today I want to provide an answer to the question that most accountants fail to answer: Why?
This question comes in a hundred different forms:
Why can’t I call this thing that thing in my bookkeeping?
Why do you want me to do it differently from what makes sense?
Why is this so complicated and stupid?
And most accountants will answer your Why? with something like:
“That’s just how you have to do it.”
This is not true.
I will give you a better answer to the question of Why? because I have a broader perspective than other accountants.
I have a broader perspective because I became an accountant accidentally.
I accidentally learned accounting from a Zoomed-Out Perspective, and then from a Zoomed-In Perspective.
Zoom Out:
I worked at a startup with a CFO who used confusing accounting terms to hide some weaknesses we were experiencing as a company.
I realized I needed to learn accounting in order to understand (and possibly to counter) some of what the CFO seemed to be doing.
Eventually, I ended up managing most of the CFO’s former reporting lines… and $50 million of revenue as the Chief Revenue Officer.
This was when I first learned accounting. It was very Zoomed-Out, “high level” stuff.
Zoom In:
Years later, I was hired to consult for a busy Tax Accountant.
Her heavy workload was a mystery to me, because she had very bad business practices. But she also acquired tons of business.
So I wanted to understand the x-factor that makes this equation work:
Bad Business Practices + x =Tons of Business
I did an intensive apprenticeship under her and learned what that x-factor was.
You see, most accountants provide confusing answers when asked for advice. But this accountant always told her clients exactly what to do. In fact, she would sometimes scream it at them and throw them out of her office if they didn’t listen.
I was lucky to learn from such an intense leader, because she kept me on the ball—just like she kept her clients on the ball.
In that time, I gained perspective while she taught me to do the accounting her clients needed in order to prepare their taxes.
This was very Zoomed-In, “root-level” accounting.
Back to the question of Why?…
Something you should know is that people who become accountants on purpose specialize in one small point on the Zoom In <-> Zoom Out scale… because that’s just the best way to build a career in accounting.
So when you ask your accountant Why? they tell you the only answer they know:
“This is how it’s done in my little corner of accounting.”
“That’s just how you have to do it.”
The correct answer to the question of Why? requires a broader view of the Zoom In <-> Zoom Out scale.
So…
Ask an accountant like me Why? and I’ll say:
Because Your Business Will Probably Fail
But… Doing it This Way Reduces the Likelihood of Failure
Point 1 is very simple — Most small businesses fail.
More than likely, you will be back working for someone else to pay off the debt you will have incurred in the failed effort.
Point 2 is much more interesting — Accounting decisions, made well, increase the likelihood of SUCCESS and decrease the likelihood of Failure.
This is simply true of every business decision you will make:
Large decisions: Should I become an S-Corp this year? or an LLC?
Small decisions: Should I spend for personal things just this once on my business card?
Arcane decisions: Should I take the 179 deduction on the computer I just bought, or should I depreciate it some number of years?
Which that brings me back to EEW’s 4 Rules.
Why?
Well, now you know the answer:
Because Your Business Will Probably Fail
But… Doing it This Way Reduces the Likelihood of Failure
So let’s remember Everything Every Week’s Rules #1 - 4!
Pay These Only 1 Time Per Week — yourself, your bills, and your taxes
I created Rule #1 so you will learn over time to think comfortably and strategically about your money, which reduces the likelihood of failure.
Moving your money properly each week gives you a feel for your numbers and reduces your anxiety about them, enabling you to think more strategically about how to grow and thrive.
Open Two Accounts — one for Income, one for Expenses
I created Rule #2 because it will make it far easier to maintain your books, thus maximizing your bookkeeping accuracy at the lowest possible cost.
Great bookkeeping enables loans or investments for your business, it tells you when and how to change your business structure, and it makes taxes a low-cost snap.
Three People You Never Lie To — the IRS, your Bookkeeper, and Yourself
I created Rule #3 because it will cause you to recognize and solve profitability problems earlier, and will recruit at least one advisor (your bookkeeper) to help prevent you from making reckless decisions.
Being radically honest forces profitability problems into the spotlight. Remember — your business issues are not to be blamed on Taxes. Those taxes were already there when you started this thing.
Forward Your Receipts to Yourself
Digital Receipts —> Forward to yourself via email
Paper Receipts —> Snap a photo and send to your email
I created EEW Rule #4 because it’s the optimal balance of risk reduction in both directions… and it’s simple enough for anyone to do.
Following tax compliance reduces the risk of a disruptive audit or tax bill from the IRS. Being too rigid may increase your personal risk of business failure by paralyzing you.
Taken together, following the EEW Rules inevitably teaches you what the numbers in your bank account actually are:
A resource at your disposal, to be leveraged by you for growth… and never to be feared.
You cannot learn the power of this from a book, or this newsletter.
You learn how money works by moving it.
Do you get it?
If you don’t, bookmark this post… and put a note on your calendar to come back in 3 months. Follow EEW’s rules perfectly until then.
Now do you get it?…
