Accounting Trap

What is the difference between a $50 hotel room and a $500 hotel room? When looking for a hotel room you need only a few things:

1. Shelter
2. Bed
3. Shower

Everything else is extra. A room with a nice decor costs extra. Bigger bed - bigger price tag. Add amenities like a pool or gym, add some dollars. These “extras” have become standard in the hotel business and with good reason: people will pay more for them!

And all of these “extras” have a small up-front cost to a long-term (extra) income generator.

But the Accounting Trap will say that you need to bring in an extra X% before you can add these “extras”.

The essence of the Accounting Trap is that you have to save the money you want to invest instead of invest the money to enjoy the savings. Many a great business has fallen to the Accounting Trap. After all, “the numbers don’t lie.”

The numbers don’t lie. They are limited by what was, not what could be. Smart investments build value. Value is what your customers buy.

It is smart business to track everything. Especially the flow of money. I hate accounting. But I love the information accounting reveals.

How much does it cost, really? What is our profit margin? How much does [random customer] owe us? Only accounting can answer these questions. (And many, many more.)

I get memorized by general ledgers, P&L statements and projections analysis. I hate to do the work. I love to reap the benefits.

It is important to have a love affair with good accounting information in your business. And because of this, it is easy to fall into the Accounting Trap - that place where creativity and innovation die because the intangibles just don’t match the “bottom line”.

Words like “brand” and “experience” and “passion” look out of place on a general ledger. So they rarely find their (rightful) place there. And that is the Accounting Trap.

Accounting can be used as a limiter or an enabler. The trap is when accounting is used to show how you can’t instead of revealing what needs to happen so you can.

The best (only?) way to avoid the Accounting Trap is to remember that those numbers only show what was… Not what could be!

PS. If your accountant is constantly impeding your efforts to move your company up fire them and get one that will show you how projections can be used to help your efforts.