11 Keys to Great Success in Life and Business: Key 9: Understand Accounting and Finance

Let me apologize to you right up front—this article isn’t the typical “dream big” stuff I enjoy writing about. But the truth is, if you don’t understand these concepts, your big dreams could turn into big nightmares.

Many sales-minded people are not interested in accounting and finance. My guess is that it’s a right brain/left brain thing.

Having good sales and good margins does not mean you have a good business. There are lots of companies with good sales and good margins that go broke every year.

If you want to be truly financially successful, then it’s critical to understand the basics of accounting and finance.

If you understand the following top 10 accounting and financial concepts, then good for you. If you don’t, I strongly recommend you take the time to learn and fully comprehend them.

Here are the top 10 (minimum) accounting and financial concepts you need to understand and have built into your business:

• Cash-flow planning
• Balance sheet analysis, especially comparing current assets to current liabilities
• Accounts receivable aging
• Accounts payable aging
• Inventory turnover and aging
• Net worth/retained earnings
• Debt to equity ratio
• Income statement analysis, especially understanding your expenses after gross margin and before pre-tax profit (selling, general and administrative)
• Fixed costs versus variable cost
• Internal controls—can two people in your organization collude together and steal cash from you and your business?

Ok, I promise we’ll have much more fun in the next article.

Previously, in our “11 Keys to Success” series we discussed:

Key 1: “Add Value”
Key 2: “Find Your Passion”
Key 3: “Be Extraordinary”
Key 4: “Start Now”
Key 5: “Find Great Mentors”
Key 6: “'Can’t' Is a Four-letter Word”
Key 7: “Be Accountable”
Key 8: “Major in the Majors”

Stay tuned next time for the 10th key to achieving great success in life and business.