The Joy of Being an Accountant

I don't mind numbers, never have. When I'm entering checks and deposits in my Baha'i community's cash journal, I often to the math in my head first, then check it on the calculator before making the entry in pen. Usually I get the math right, and smirk a little when I do. Because I can round numbers pretty easily, most math problems don't phase me. I always did well in algebra too (get the joke?). But when I have uneven cents? Then I just go straight to the calculator, unless the cents are in the 90s --  they're easy to do. I've handled our local organization's books and funds for decades. Handling our personal checking is also easy because I just spend (within limits), and Janet does the bookkeeping..

The same principals apply to both organizational and personal finances: Save all deposit slip copies and paid receipts, write a numbered receipt for all monies received, reconcile the checkbook monthly, and usually trust the monthly bank statement. On the back of the statement is a form that makes reconciliation easy for small accounts, and I use that religiously. When I skip any of these steps a simple transposed number can throw my balance off for weeks. Then I bring in the big guns, Janet, an ex-accountant for Mercury Travel for years, and she finds and corrects my accounting problems. She hates it, but she's good at it. Hate is too strong. Frustrated that I make simple mistakes at all is more like it. But that's because I rush. I rush everything - my work, driving my car, and opening my mouth.

I've never taken a formal accounting class, except for a very basic, brief class that the Baha'i National Treasurer's Office in Wilmette Illinois gave me over thirty years ago. It was on the double-entry system, and the booklet they gave us had many double entry examples of all types, even contributed expenses, so it wasn't hard to understand. I still refer to that booklet. So working for the state, handling millions of dollars daily, I had no trouble with math, and could see a ripoff or a bargain easily from doing a breakeven analysis.

(Correction, three days after posting this: When Janet read this blog, she said "Liar."
"Huh,? What do you mean?"
"This year your books were a mess! I spent all those hours fixing them! How could you write that accounting comes easy to you?"
"Ah, you're right, this year I was terrible. But I really don't mind numbers, it was the new credit card that threw me off."
"No excuses! You have to write your entries carefully, and balance each page of the cash journal at the end of each month with the bank statement. Got it?"
"Got it dear, promise.")

And I will be careful: S-L-O-W-E-R.

Breakeven analysis is easy too, and every accountant's best friend. It tells you how many months it takes to "break even" on an expenditure, including all costs in and expected savings from the purchase or lease. For example, the car I may buy (a Honda), costs $25,000 new, and the lease is $3200 down and $200 a month (aside from maintenance and gas etc), I'll spend $10,400 over a 36-month lease, and NOT own the car at the end. But its' a new car, so maintenance and repair costs s/b low, especially if I finagle free oil changes.

What if I bought it and kept the car five years? $26,750 k (incl. NJ Sales tax) for 5 years of use equals $450/mo compared to the $300/mo for the lease. Equalize that on five years, and the longer lease (3 years plus two years),  costs around $350+/mo with inflation etc. vs $450 for the purchase, still a bargain. However, if I keep the car longer, you can see they will be the same payment at some point. Either way, leasing saves money over purchasing outright for short terms, and I have the car the same length of time.Unless I want to own the car for ten years. But then starting in year 5+ I'd have to add in maintenance costs.

The basic formula is P = Rm + Mm, or Purchase Price equals number of Rent months plus number of Maintenance months, and their costs. In this car example I don't have to factor in maintenance for the first five years, so the breakeven simply tells me how many months it takes to reach the Purchase Price.  We used these formulas all the time in my office at the state, because buying products like software always had three elements: the term of the contract in years, the Purchase Price and the annual Maintenance cost (usually, now, 20 to 25 percent of the software purchase price - Microsoft called this "Software Assurance"). The variations help factor for any number you need. There's only one problem with using an automobile in this example. Add in mileage charges, and this analysis goes out the window, and leasing vs purchasing becomes much more equivalent - no advantage either way. Of course, having $25k in one's pocket is quite different than paying $350/mo.

All this is off the topic of accounting and more on math, but as a business owner, along with the other 500k small businesses in America, tools like these become critically important to survival. The State's SBDC doesn't teach this that I know of, but if you don't do it in your business regularly (and change prices accordingly), you won't be in business long. Most breakeven business analysis formulas have to do with Revenue (Sales) Income vs Cost of Goods to produce the product, but the same principles apply.

I mention all  this because 1) it is soooo easy to start a business in New Jersey ($300 to $400 depending), 2) soooo easy to use a credit card online to do it, or 3) get a business loan if you have excellent credit and put up collateral (like your house), if you have bigger goals. it only cost me $350 each to start both my limited liability companies. That also makes it soooo easy to fail. According to the U/S Census Bureau, there's around six million small businesses in the U.S. with less than 100 employees. And, according to the Small Business Administration, over 50% them fail within the first five years. The SBA gives a bunch of valid reasons, the first one being lack of experience.

The State's website even has a tab called "Starting Your Own business" to help you do it, but its not training. Its a checklist. I think all new business owners should go thru training like the little break even formulas above, as a condition of getting their business license or registration number.

Maybe, just maybe, we can cut that 50% number down to say, 25%? Wouldn't that be better for everyone, especially the owner.

By Rodney Richards, NJ