I am Oprah's No. 1 fan. I even started a Plumbing & Mechanical edition of Oprah's Book Club. Recently, I read an article in Fortune magazine about my idol. Oprah is in trouble. And I am here to help:
Dear Oprah,
I bought the April issue of Fortune magazine because you were on the cover. You are smart, sincere, kind, loving, giving, successful and inspiring. But, since reading the article, I've been concerned. Please take this letter as a loving wake-up call.
In the article, you happily admit that you can't read a balance sheet. With all due respect, Miss Oprah, that's just irresponsible. You are a businesswoman, by virtue of having a business. You are a businesswoman the same way you are a dog owner. And, like being a dog owner, you assume certain responsibilities with that choice.
As a dog owner, you are responsible for feeding and caring for your dogs. While you may hire someone to help, if the dogs were being mistreated, it would be your responsibility to know that ... and correct it. You could discover that they were being mistreated by looking at the dogs. It's your responsibility to check on them.
You can tell whether or not your company is healthy by looking at the balance sheet. You could learn to read a balance sheet. It's simple stuff. I could teach you ... in about five minutes.
It's Easier Than You Think
In Katherine Graham's Personal History, she recounts the time that Warren Buffet taught her to read a balance sheet: "Assets on the left, liabilities on the right." Learning that information allowed Ms. Graham to fully inhabit the role she assumed after her husband's suicide. Ms. Graham was the CEO. It was her company, and her responsibility.By learning how to read a balance sheet, she could stand eye-to-eye, toe-to-toe with those who may have used her ignorance against her.
Plumbers have the same problem. I work with plumbers. I love them! They are so smart. They have done so much to keep us safe from disease and discomfort. They struggle with the businessperson yoke, too.
"I'm a plumber, not a businessperson."
Again, by virtue of having a business, a plumber becomes a businessperson. Much of my time is spent helping plumbers get over it ... and confront the money and the numbers.
Certainly, you can delegate the bookkeeping and the accounting. But at some point you have to check the score. The balance sheet is the scorecard of business. If you know what you are looking at, you can figure out if you are in trouble ... or in good shape. You will also keep yourself from being held hostage by an accountant.
The Hostage Situation
Oh, the power some bookkeepers and accountants have over business owners. One theory is that bean counters have deliberately cloaked the simple art of accounting in funny vocabulary. Words like amortization and vehicular depreciation are intimidating. I'm not suggesting you don't need an accountant. But be selective and discriminating.Does your accountant act as an enrolled advisor in your success? Look for these good indicators:
- Explains accounting in easy-to-understand terms.
- Encourages you to do basic bookkeeping functions in-house, so you can get the broad-stroke financial information right away.
- Is willing to customize the Chart of Accounts to reflect the way you do business.
- Is willing to learn your accounting software system.
- Returns your calls within 24 hours.
- Doesn't talk down to you.
- You feel honored to get your financial reports in time to submit your taxes without a late penalty.
- He/she is busy and "short" with you when you call.
- He/she suggests that he/she does all your bookkeeping ?but then keeps you waiting for the numbers every month.
- He/she insists on using his/her software system and Chart of Accounts.
- Lets you know you just aren't as smart as he or she is.
Is your avoidance of financial reports based on the fear of your bean counter making you feel stupid for asking questions?
If you are being held hostage, it's time to break free. Go for it! This accounting stuff is just not that difficult.
Accounting 101
Assets are your stuff ... money, buildings, inventory.The Balance Sheet: Assets = Liabilities + Equity.
Basically, the balance sheet tells you how much stuff you have, and who owns it. What you have, and how you got it. It is a beautiful reflection of the basic laws of the universe. What goes around comes around, and for every action there is an equal and opposite reaction.
If you and your shareholders own the stuff, it is called equity. If someone else owns it, it's a liability.
So, if you have a magazine with $300 million in assets, and it owes $200 million in debt to the bank, then the equity in the company is $100 million. Easy enough.
Suppose your magazine makes a profit of $20 million this year.
Sales - Costs = Profits.
An increase in profits shows up as an increase in assets on the balance sheet. Assets go up by $20 million, so does equity.
Assets = Liabilities + Equity.
The balance sheet stays in balance ... just like the universe.
The Enron Enigma
When accounting stops being simple, it starts being weird. For instance, at Enron, they somehow convinced people that business and accounting were complicated and sophisticated.Here's one of the tricks that Enron pulled: In order to make the sales numbers look good, they sold a whole bunch of stuff to a "friendly" company. In return, the "friendly" company sold it back. Both companies show an increase in sales?ut the whole transaction is just for show.
Scolding Schools
In a recent issue of Fast Company magazine, Shirley Tilghman, president of Princeton University, reflected on how things have changed since the tragedies of Sept. 11, 2001.She said, "In my weekly meals or meetings with students, I sense a profound change in the way they think of their futures. There was a headiness before, where now there is deep anxiety. At the same time, I applaud the heightened interest in public service and nonprofit work that is replacing the tendency to run off to Wall Street to make money."
Shame on her. If not for business, where would tuition dollars come from? Ms. Tilghman likely spends part of each week soliciting donations from well-to-do business alums. This mixed message from educators creates the anxiety that causes you, and plumbers, to feel badly about your businessperson role.
Educators are often prejudiced against business. Be aware of this, and start recognizing the conditioned anti-business beliefs in your head.
Basic business skills could be taught at the sixth-grade level. Alas, our beleaguered public school system is burdened with enough challenges. We can take responsibility and teach ourselves, our kids and each other.
The Poor Can Become Rich
There are two ways to distribute goods and services: Government and business. If more people understood business, we could become less dependent on the government. You have broken a lot of barriers. Interested in breaking one more?Business illiteracy creates class distinctions. And, this business business is just not difficult. The poor can become rich. That's a defining characteristic of America. That's why I am so passionate about this. It can happen here. You made it happen. While you made your fortune without knowing how to read a balance sheet, your fortune is at greater risk because of your unwillingness to LOOK.
So much of your message is focused on living the best life possible. You have helped your listeners, viewers and readers to overcome the barriers that keep us from living the best life. You've shared a plethora of personal development help, including personal finance.
Interested in eradicating business literacy ... yours and others? Call me. I'm here to help. 417/753-4046.
Love, peace and prosperity,
Ellen Rohr
