The Complete Idiot's Guide to Finance and Accounting

The Complete Idiot's Guide to Finance and Accounting


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The Complete Idiot's Guide to Finance and Accounting by Michael Muckian, Michael Muckain

You're no idiot, of course. You hire and manage talented people, carry out your daily tasks with grace, and even find ways to shine under deadline pressure. But when it comes to finance and accounting, you feel like you're in the red. Don't throw in the towel yet! The Complete Idiot's Guide to Finance and Accounting helps you create a budget, manage a payroll, and develop a financial management—from the perspective of a nonfinancial manager. In this Complete Idiot's Guide you get:

Product Details

ISBN-13: 9780028617527
Publisher: Alpha Books
Publication date: 09/01/1997
Series: Complete Idiot's Guide Series
Pages: 320
Product dimensions: 7.34(w) x 9.06(h) x 0.70(d)

About the Author

Michael Muckian, co-author of The Business Letter Handbook, manages five international organizations devoted to improving the networking and educational opportunities for financial marketers, human resource professionals, chief financial officers, lending officers, and technology specialists. He also writes and edits articles, commentary, and books for numerous trade and regional publications on business and finance, health care, food and wine, and travel.

Read an Excerpt

Chapter 1

Mastering Financial Management

In This Chapter

  • Recognizing your financial responsibilities
  • Understanding the financials
  • Learning why you need to manage finances
  • Getting ahead and staying there
When you took your place among the executive hierarchy as vice president of marketing, director of sales, or head of product development (or maybe you're not there yet, but it's a goal), you had all the professional skills you needed at your fingertips, right? You graduated from a good school, fought in the workaday trenches of corporate warfare, climbed to the top of your respective discipline thanks to talent, drive, determination, and guts.

Did you remember to master financial management? Do you have at those same finger-tips the same level of mastery for the accounting, financial planning, and forecasting side of your business? If not, you've still got some important lessons to learn, and you better start now.

Financial management, even for nonfinancial managers, is a crucial part of any job you have in your company. It's the glue that holds together the business side of your disci-pline, and its goals are the framework around which you must build your efforts.

Recognizing a Necessary Evil

Frank was the editor of a large finance industry weekly and filled with the vinegar he needed to savagely compete against his closest rival. He was a demanding manager filled with a journalistic flare. His reporters even went to jail…just so they could write about the experience. He expected no less of himself and worked long, hard hours to make the publication a success.

Frank knew a good story and spared no expense to go after it. He was acclaimed in the financial services industry, but often spent too much of his publication's own financial resources going after a story. Frank paid little attention to how much he and his staff were spending, waving off his publisher and accounting department on a regular basis when they called this to his attention. He felt his job was to get the story and spent whatever it took to pursue the higher purpose of newsgathering.

Frank could manage the news, but he couldn't manage the financial side of his editorial responsibilities. Frank soon was replaced by another manager who, while not as strong on the editorial side, knew the value of a dollar and the role it played on a balance sheet. He had mastered financial management for the sake of the newsgathering responsibilities. In the end, the publication and its readers were better off.

Journal Entry

Accounting properly performed is not a cost item or overhead expense (as some executives like to think). If your company's accountants prepare a monthly report and managers use the findings to adjust the operations of the business to a more profitable scenario, then the accounting operations directly contribute to help the company make money.

It doesn't matter what your professional responsibilities are. If you're in management at any level—and especially if you're running your own business—financial management is one of your most important responsibilities. In fact, some would say it is THE most important responsibility. Without it, you won't be able to practice the profession for which you've spent so many years preparing.

Frank's experience is typical of nonfinancial managers, but there's another group I hope will benefit from this book. That's the entrepreneurs and small business owners, profes-sionals who at one time may have been nonfinancial managers, but who have decided to go off on their own. They have similar financial management needs, and we will be moving back and forth between the nonfinancial manager orientation and the entrepre-neur orientation throughout this book.

Understanding the Financial Side of Business

Any company, large or small, has trained professionals whose task it is to manage the money-go-round that keeps their organization afloat. Whether the title is accounting manager, controller, or chief financial officer, the responsibilities center around the same concerns. The financial department is the hub around which all financial activity re-volves. The larger the company, the more sophisticated and complex those revolutions may be.

These financial professionals will be the first to say that the financial side of any business is important to every employee. Whether it's good resource utilization that reduces expenses or the ability to present a positive public image for the company so people will buy more company products, thus increasing revenues, it's clear the company's financial success is influenced by everyone who works there.

If you're in a management position, however, that responsibility runs a little deeper. You have direct responsibility for managing key streams of resource expenditure or income generation. Take too careless or casual an attitude and your department may spring a financial leak that can begin to drain business finances dry.

In fact, no matter who you are or what you do, as a manager, you can't afford not to be on top of your financial position at all times. Eventually, you'll find you're not only capable of managing that function, but you also have begun to enjoy it. In time, you may recognize this as the single most important function for which you're responsible. But let's walk a little bit before we try to run.

Solid Reasons to Manage Finances

Somewhere inside you, a little voice is cringing at financial management and accounting. That voice is telling you it's right, good, and proper to understand finances as well as you understand the individuals who report to you and the products or services you manage. You don't want to believe it because finances can be complex, boring, even frightening. But you know it's true. Here's why:

  • Your management responsibilities contribute directly to your company's profitability.
  • Understanding how the company's finances work is simply good management practice.
  • The rationale for understanding financial matters may be as simple as making the accounting department your ally.
  • Understanding your department’s finances puts you in a good position to under-stand other departments’ finances, thus other departments.
  • You'll be better able to manage your department if you understand the financial implications of your actions.
Red Flag

Often managers leave finances to the accounting depart-ment and never think again about their company's financial position until the company declares Chapter 11—bankruptcy. As an executive or owner, your primary responsibility may not be accounting, but accounting for your specific functions in the company is a key component of your job. If you want to keep your job, that is.

In some office in another state, another country, or perhaps just down the hall, the company president is nursing a grand vision for making your company a financial success for its stockholders, employees, and the customers it serves. In the vision, you and your fellow nonfinancial managers sit squarely in the middle, key components to helping or hindering progress. Are you a conduit or a roadblock? Your financial acumen can make a big difference in how you answer this question.

If you're in marketing, it helps your efforts to know how the products you sell are devel-oped, assembled, packaged, and shipped. If you're in development, it helps to know what the marketing department is doing with your work. It will help you achieve the com-pany's financial goals if you know the financial implications of what happens in your department and the other departments in the company.

If the folks in accounting have routinely stepped down hard when it comes to develop-ment expenditures, marketing plans, and other cash outlays you want or need to make, then maybe it would help to see it from their point of view. Knowing how to manage your finances makes you and the finance and accounting departments allies (rather than adversaries) in achieving the goals of your department and the company as a whole.

Nothing impresses financial professionals more than a manager who sees it from their point of view, who finally gets what they're nagging everyone about. And no matter how much you may dislike the discipline they stand for, they're powerful allies to have.

Top management will think more highly of you if you bring overall financial acumen to your position. Moreover, since financial principles are fairly standard for companies throughout North America, you may be the one they choose to take over other departments floundering in financial waters. ("She may not know anything about building widgets, but at least she has a clear grasp of the finances.") Consider your financial expertise a gateway to other oppor-tunities. Remember: Most managers hire an applicant not only for the position currently open, but also with a view toward promotion and greater responsibilities later. Knowl-edge of financial matters transfers very well—and that makes the person who hired you look very smart!

Red Flag

Too many nonfinan-cial managers are intimidated by the language of account-ing— credit, debit, amortization, accrual, and the like. But the concepts behind accounting are basic. Pay attention to those, not the vocabulary. You'll be better off.

That's the primary reason you picked up this book and the true reason to master business finance. Financial ebb and flow affect the growth and operation of your department, from product-development decisions all the way to hiring and firing. It's not only the right thing to do; it's also necessary, given that your depart-ment is interwoven with other aspects of the company. Financial decisions you make will affect other department's financial well-being. Make sure you're making the right decisions for all parties concerned.

Use What You've Got

You can never be too financially savvy for your business. For example, when a magazine decided to hire a new editor, they chose Mary, who had both a journalism degree and an accounting background. In addition to having better product knowledge about the financial industry on which the publication focused, she also had a much better sense of the procedures for managing the department's finances.

Knowing Mary's background, the accounting department managers never questioned Mary's judgment. In fact, they never even looked that closely at her accounts, as long as her bottom line was within budget. For anyone who's jousted regularly with an account-ing department, that kind of freedom from scrutiny can be a little slice of business heaven.

The amount of financial knowledge you need to have will be relative to your responsibili-ties. In past decades, a background in finance and accounting was a quick avenue to a corner executive office. These days, however, more and different disciplines are leading the charge, with marketing moving to the head of the pack in many consumer sales-based industries. That's not to say that finances are becoming a less important consider-ation. Today, those who make it to the top have financial acumen to go with their marketing or other operational expertise.

Building a Foundation

What components of financial management do you need to know about? Here are some of the elements with brief explanations:

A basic knowledge of accounting practices and principles is worth the effort that it takes to learn them.

In addition to earning the unbridled respect of your company's accounting profession-als— and that goes a lot further than you might think—understanding how things are done and why from an accounting perspective will broaden your understanding of financial management. You already know why you budget so many dollars per year for sales calls, but understanding how those figures affect the rest of the company will help you make better decisions for your department and for the company as a whole.


Build up to financial manage-ment incremen-tally by mastering basic concepts and principles first and then moving up the ladder. Slowly but surely the pieces will fall into place...

Table of Contents

Part 1: Getting Started 1(36)
1 Mastering Financial Management It's not just for accountants--and it's not as bad as you may think.
2 From Strategy to Business Plan Having a strategy may mean the difference between success and failure. But even the best strategy will fail without a good business plan to put it to work.
3 Budgeting 101 You don't have to be an accountant to properly account for your business.
Part 2: Accounting for Your Success 37(62)
4 The Accountant in You The more you know about how and why the people who handle the finances do what they do, the more easily and intelligently you'll be able to work with them--and understand your job better.
5 Your Company's General Ledger If a company's accounting system is its financial body, the general ledger is its heart.
6 The Chart of Accounts This is the primary tool to help the accounting department and all managers keep the debits and credits straight, in each department and throughout the company.
7 Accounts Receivable Who owes you money? How much? That's the essence of accounts receivable. But if you're smart, it can also be almost like cash in the bank.
8 Accounts Payable Keeping track of money you owe isn't nearly as much fun as keeping track of what you're going to collect, but it's a part of business life.
9 Watching Your Cash Flow If you think business is all about ending up the year with more money than when you started, you really should read about cash flow--or the end may come sooner than you think.
Part 3: Managing with Accounting 99(40)
10 Managing Payroll Your employees are your most valuable asset. You know how much they're worth to your business, but do you know how much they cost and how to account for them?
11 Inventory Control It's really tough to get what you want if you don't know what you've got.
12 Cost Accounting Having money left after paying your bills does not necessarily mean you're profitable. You may know the direct costs of doing business, but if you don't figure on overhead, you may be in over your head.
13 Managing Internal Controls People are people--and some of them yield to temptations. You're never too small to lose money and other assets.
Part 4: Sources of Funds and Acumen 139(36)
14 Managing Commercial Lenders You can't always get what you want, but you just might find you get what you need--if you know about borrowing and the art of making economic partners.
15 Using Venture Capital Venture capitalists are called "angels" and sometimes they can help you work financial miracles. But not knowing the essentials of working with them can put you through hell.
16 Proprietorship, Partnership, or Incorporation? How do you want to do business? What's the best structure for you? Not knowing can cost money--and not knowing how to maximize the advantages and minimize the disadvantages can cost even more.
Part 5: Your Company's Tax Obligations 175(26)
17 Your Business Obligations to Uncle Sam Now that you're in business, there's more to it than a simple W-2. And you really don't want to risk getting into trouble with the IRS.
18 Sharpening Company Tax Smarts For some people, taxes are a way of measuring financial success. But if you're smart, you'll minimize your taxes--and find better ways to measure your success.
19 Partnerships, S Corporations, and Limited Liability Companies When it comes to taxes, these three business structures are not like corporations. How are they different? And what's that worth to you?
Part 6: Strategies for Growth 201(62)
20 Developing a Financial Plan If you liked Chapter 2, you'll love this chapter. You know how to go from strategy to business plan. Now it's time to get a little more sophisticated, by developing a financial plan.
21 Forecasting Your Future What lies ahead for your business? Sunny skies or sudden storms? You'll be better prepared if you know the basics about forecasting, the science of financial projections.
22 Preserving the Bottom Line We all use the expression, "The bottom line is..." That's how we call attention to what matters most. The bottom line is the responsibility of your money manager, who focuses on your assets. Is your money manager the right person for the job? Is he or she doing as well as possible?
23 Developing Growth Strategies Growth is good, right? Well, not necessarily. In fact, too much growth can stunt your growth--or kill your company. The difference between growth = success and growth = failure is planning.
24 Partnering with Vendors We all know that business is competition. So, it often helps to work in teams. If your relationship with your vendors is basically a matter of orders and invoices, you probably could benefit from going beyond paperwork to partnerships.
25 Troubleshooting Your Business System Can you recognize the signs and symptoms of a financial management system under stress? And do you know that by the time you recognize them, it may be too late? As with so many areas of business, it's important to have the proper system.
A What's My Data? 263(8)
B Flexing Your Financial Muscles 271(10)
C Glossary 281(8)
Index 289

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