As the creative genius behind your company, it’s possible you have things you like to do better than math.  You may prefer focusing on developing new products or finding new ways to market your existing products. 

But if you are going to run a business, you have an absolute duty to keep track of your finances.  Even if you hire a bookkeeper or an accountant, it’s still your job to have an in-depth knowledge of the financial status of your company.  It’s just good sense.  No matter how trustworthy your employees appear to be, you are the one whose reputation and livelihood are on the line if something shady happens, and you are the one who has the most to lose if the business fails.

In fact, after some of the business meltdowns of the late 20^th century, Congress passed the Sarbanes-Oxley Act in 2002, making executives of publicly held companies criminally liable for any financial shenanigans at their companies.  No longer would simple ignorance of what was going on be acceptable as a defense for executives whose companies plundered millions from employees and shareholders.  The SEC offers a good primer on how Sarbanes-Oxley might apply to your business.[i]  If you have sold stock in your company to anyone, you need to learn what your responsibilities are.

Although Sarbanes-Oxley was aimed at publicly-held companies, the same principles should apply to small, privately-held businesses, as well.  Besides the issue of accountability for financial wrong-doing, you simply cannot manage a business without being intimately knowledgeable about the finances.  How would you know which products and services are making money?  How could you see where money is being wasted on programs that aren’t bringing in any benefit?  How can you plan for future growth if you don’t know what’s working now?

Finally, no matter who prepares your tax return, it is likely that you, as the head of the company, will be signing it.  That means that you are personally liable for its accuracy and you will be the one the IRS comes after if it is wrong.  That in itself should be enough to convince you that keeping an eye on your company’s finances is worth it, even if math gives you a headache.

What do I need to track?

As a busy executive, you may not have time to track every single expense and revenue stream in your company.  However, you do need to see top line reports that are detailed enough to give you a sense of what’s working and what’s not.  You may do this through a commercially-available accounting program such as Quicken, or you might develop your own spreadsheet or ledger book to track your finances manually.

At a bare minimum, you want to know the expenses associated with each of your products or services and the revenue that results from these expenses. 

How finely should you separate your expenses?  You can divide expenses into as many categories as you think is valuable, but at a minimum you will want to follow the categories spelled out by the Internal Revenue Service so you can file your taxes more easily.

For sole proprietorships, you will have to file a Schedule C with your 1040 form.  For joint ventures and other types of corporations, you may have to file form 1065.  It is worthwhile to download a copy of the correct form[ii] and consult it when you set up your chart of accounts, rather than trying to fit the categories you chose arbitrarily into the format the government requires. 

It is in your best interest to keep your financial records up-to-date, as you may need to produce them when you decide to try to attract investors, partners, or other stakeholders.  If you keep track as you go along, it’s much easier to put a presentation together than if you have to first gather all of the data before compiling it in presentation form.

If you are truly bad at math, it’s probably in your best interest to have someone else keep your books for you.  However, you need to understand where the numbers are coming from, and you need to get summary reports at least monthly so you know how to guide your business going forward.  It’s important that you have at least a basic understanding of the work your bookkeeper is doing, as you should perform random audits to make sure everything is copacetic. 

No matter how trustworthy your employees may seem to be, you have the most to lose if they take a little detour from honesty.  At random intervals you should pull some invoices from the files and make sure that the amount billed is the amount that got recorded in your ledger as being paid, and track the expense to your checking account to make sure the check was written for the correct amount to the correct vendor.  Pull bank deposit slips and make sure that every payment received is included in the deposit.

Auditing your financial records is a good business practice.  It doesn’t indicate distrust; rather it indicates you are paying attention to something that can have a huge impact on the success of your company.  Because cash flow is so important, all of your employees should feel good that you are keeping good track of the very thing that will keep them employed.