This was hilarious for me to read. Apparently, Donald Trump Jr. admitted he does not understand basic accounting. But, he did sign off on the finances of his dad since he was the only trustee for the entire family business.
While this is definitely complete BS and most likely just some weird scheme to claim ignorance or something similar, an attempt to protect himself and the family for potential lawsuits, it does bring up a very interesting thing:
Many business owners know absolutely nothing about accounting.
And this is a very dangerous thing for your business. As a business owner, the best thing you can do is to learn at least the basics of several parts of running the operation. And accounting is very high on the list of must-learns.
Accounting includes several activities, like:
- Collecting financial information, records, statements, and reports.
- Recording financial transactions.
- Preparing tax returns.
- Making sure taxes are paid on time.
- Making sure financial records fully comply with laws.
Way too many believe just accounting and finance professionals should know accounting concepts. In reality, financial accounting stands out as a vital business skill you should have as a professional in any field.
Why Should You Know The Basics Of Accounting?
While the list of whys can be quite long, the most important reasons to highlight are the following:
You’ll Be Better At Managing Your Finances
Do you know where your money goes after you get your paycheck? If not, you definitely need some basic accounting knowledge.
With the knowledge you get when you learn some accounting you can figure out how to track your expenses and how to respect a budget. We tend to think we know such things but practice often tells us something different.
You Can Better Understand What Happens In The World
There is a pretty good possibility you heard several stories about how people manipulated financial documents to gain something. Or you heard about some small accounting mistakes that led to disastrous consequences.
Understanding accounting basics lets you understand what companies did wrong and how to avoid such unwanted situations. Also, more importantly, you will learn how the current financial events are potentially impacting your industry and organization. For instance, if something serious happens, you can figure out that you need to reduce spending in the following weeks as you might have some problems. Or you would be able to anticipate financial turmoil, even things like recessions.
It Makes You A Better Entrepreneur
If you think about starting your own business or you already own one, basic accounting principles are simply mandatory for success. Entrepreneurs need accounting skills like determining profitability potential, communicating financial information, and forecasting future sales. And when running a company you have to manage cash flows, vendors, payroll, invoices, and costs.
Without basic accounting knowledge, you can so easily lose track of what is happening as you run your business. It is just so much easier to reach entrepreneurial goals when you understand what is happening with the finances of your business.
You Can Be Better At Work
Let’s say your CFO wants to talk to you about the financials of the past quarter. Can you really discuss these things if you do not have accounting knowledge? You might think you do but this is not actually the case. You will simply not be able to understand what your chief financial officer will tell you.
It should also be mentioned that when you have accounting knowledge, you can figure out what is happening with the financial health of the organization you work with. You can use this data to get insights and make suggestions so that you can improve the work you do. Simply put, when you understand the finances of your company, it is easier to be effective at your job.
Remember that businesses use different financial and income statements to make decisions based on data when they want to invest, make budget changes and allocate resources. Your accounting skills can help you make the best possible choice, based on financial evidence.
You Can Make More Money
Basic accounting is vital for anyone that wants to make more money because, at the end of the day, you need money to make money. This is the ugly truth few people actually admit. You are told you can invest in 401(k)s, start a blog, and so on. How do you do that without money?
Accounting knowledge lets you better manage your money. It lets you look for opportunities and understand how your spending patterns lose you money. Basically, it helps you to gain more money by realizing how you lose money.
Knowledge of basic accounting will not fix all your problems. Obviously. But it can help you a lot more than you think to do many things in life and make smarter financial decisions. And it is not at all hard to just learn the basics. Something as simple as understanding the terms is more than enough to help you.