Why Accounting is so Important for Entrepreneurs

From my experience, it is extremely common for new entrepreneurs to have absolutely horrendous books. I'm in the real estate industry and many of the apartments I look at to buy from "ma and pa" investors have accounting that could more accurately be called chicken scratch.

Handwritten accounts, Word docs with a list of expenses, poorly organized Excel documents, oh my!

This isn't surprising to me. Accountants are stereotyped as boring, by-the-book people. Entrepreneurs are stereotyped as salesmanish, go-getting hustlers. It's not fair and by no means universally true. But there is some truth to it. Entrepreneurs rarely seem to have the knack for bookkeeping.

But aside from the obvious fact that you can't effectively manage what you can't or don't measure, accounting underlies all of the major needs of a new or small business. Yes, if don't have good books, you may overspend or misforecast your earnings. This could be disastrous and certainly happens. But even beyond that, who is going to give you financing if they can't make heads or tails of your books?

We refinance houses and apartments all the time, and I can tell you from experience, a confused mind says no. We prioritize our books and try to present them in the most understandable way. Because the better a lender can get their mind around where we're at, the more likely they will say yes.

This also goes for selling. A buyer will be willing to pay more if they believe the numbers on your operating statement are a full and accurate representation. While other businesses might not require as much financing or sell large capital goods, every business does some of these things.

But finally, your books project a lot about you. If you have disorganized, messy books, that will come off as you yourself and your business are disorganized and messy. This will be true for lenders, buyers, potential partners or venture capital firms and even potential employees.

Accounting is boring (at least for me), but it must be made a priority for any entrepreneur. At the very least, work to get down the basics. There are plenty of online courses, books and the like. And if need be, outsource the more complicated parts to a competent CPA. But don't make the mistake so many real estate investors and entrepreneurs have made before you and neglect this critical part of your business.