Set your business goals

Many companies are sole proprietors, making lots of money, and minting cash to the owners.

The others need to be master capital allocators - constantly evaluating the use of two important resources - people’s time and company’s money. Accounting is partly about financial reporting to the IRS or investors but it also sets the foundation of tracking to a financial goal.  A plan vs actuals, or budget vs actuals, measures your desired goal against the reality of your business (accounting equals the reality, or “actuals”). Without a budget you can guess, and you might be right.

• Am I getting the ROI I expected?
• What is the risk of any given decision?
• Is [laying off your team] or [shutting down] or [not paying vendors] or [buying too much inventory] a risk you are willing to take?
• Do you know how many months you can operate if something changes or goes wrong?

Accounting cannot answer these questions for you, but they can give you the data and confidence to help you make the best decisions for your company at any given time.