Creatives: Know your numbers

Treehouse●Business 15 Comments

Screenshot of the Xero dashboard showing graphs with bank balances

If you’re freelancing, running your own studio or startup, you really need to understand three financial statements:

  1. Balance Sheet
  2. Profit & Loss
  3. Cashflow

The easiest way to do this is to switch to an accounting tool that you can use whenever you want, without asking your accountant/bookkeeper to send your reports. It’s imperative that you can log in whenever you want, poke around the books, and annoy your accountant with a lot of questions about what’s happening with the numbers.

We use Xero and I freaking love it. The scary truth is I didn’t truly understand our Balance Sheet or P&L until we switched recently. Since we moved from QuickBooks to Xero, I’ve learned a tremendous amount about what actually makes our company valuable and what really affects our profitability.

The problem is that most of us in the web industry are creative people. Crunching numbers (especially boring things like ‘Amortization’ or ‘Accrued Expenses’) seems almost hawkish – too focused on money and profitability. Based on my seven years of businesses, you just have to get good at it.

If you’d like to get started, grab a copy of Business Accounting for Dummies [Amazon UK or Amazon US]. You can plow through it in a week.

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Comments

  • http://www.facebook.com/benjaminlbowles Benjamin Bowles

    I’ve used Xero for nearly two years now, couldn’t live without it.

  • http://www.facebook.com/benjaminlbowles Benjamin Bowles

    I’ve used Xero for nearly two years now, couldn’t live without it.

  • @abbeynormal

    Agreed Ryan- As a Design Lead, I’m not expected to know costs and returns on the projects I work on. However, knowing them gives me the ability to tell the full story on a project, and if in fact it’s worth repeating! Designer minds, put on your math hats just long enough to know if what you’re doing is worth it, and your next decisions will be more educated being empowered with that knowledge.

  • http://twitter.com/dangriffey Dan Griffey

    We sue Xero for the whole agency and it is a great great product. 
    Ryan – I would be interested to here how you use if for forecasting and cashflow. Do you keep the budget manager up to date?

  • http://twitter.com/dangriffey Dan Griffey

    We sue Xero for the whole agency and it is a great great product. 
    Ryan – I would be interested to here how you use if for forecasting and cashflow. Do you keep the budget manager up to date?

  • http://twitter.com/craig552uk Craig Russell

    “You can plow through it in a week.”
    ‘Plow’ might be a bit of a strong word, I /dragged/ myself through it in about a month. This type of maths is hard work for me.

    But having said that, it is a worthwhile read. It gave me a better understanding of my mortgage for one thing (checkout the pmt function in Google Spreadsheets). And it was interesting to learn that there are different ‘types’ of accounting method. You wanna make sure your using the right one when you set up your business.

    • http://odadia.com Matthew Votsikas

      Haha, Yeh I bought the book after watching Ryans business videos, but struggle to find this stuff entertaining

  • http://twitter.com/craig552uk Craig Russell

    “You can plow through it in a week.”
    ‘Plow’ might be a bit of a strong word, I /dragged/ myself through it in about a month. This type of maths is hard work for me.

    But having said that, it is a worthwhile read. It gave me a better understanding of my mortgage for one thing (checkout the pmt function in Google Spreadsheets). And it was interesting to learn that there are different ‘types’ of accounting method. You wanna make sure your using the right one when you set up your business.

  • http://twitter.com/TheTrackster The Trackster-Craig

    I got the book Accounting Made Simple by Mike Piper (recommended reading from Personal MBA site).  It’s 100 pages and you can get through pretty quickly but it gives you a good jumping point to ask your accountant further questions.  It’s good to know these things, but realistically you still only need the basics, and your accountant should help you.

  • http://twitter.com/TheTrackster The Trackster-Craig

    I got the book Accounting Made Simple by Mike Piper (recommended reading from Personal MBA site).  It’s 100 pages and you can get through pretty quickly but it gives you a good jumping point to ask your accountant further questions.  It’s good to know these things, but realistically you still only need the basics, and your accountant should help you.

  • Anonymous

    I use Xero as well. Their customer support is great and come across as a proper web company, actively on Twitter, they use Skype etc. It a good fit if your company is tech savy company (which as web designers we are).

    The issue I’ve had is the understanding of book keeping / accountacy itself – it’s invaluable to have an accountant for this but I can see that Xero can do so much, it’s finding the time to read through comprehensive docs – there’s 100s of pages of them. I still don’t feel 100% comfortable with your top 3 (but agree they are the top 3), I’ll add a forth, Forecasting.

  • Anonymous

    I use Xero as well. Their customer support is great and come across as a proper web company, actively on Twitter, they use Skype etc. It a good fit if your company is tech savy company (which as web designers we are).

    The issue I’ve had is the understanding of book keeping / accountacy itself – it’s invaluable to have an accountant for this but I can see that Xero can do so much, it’s finding the time to read through comprehensive docs – there’s 100s of pages of them. I still don’t feel 100% comfortable with your top 3 (but agree they are the top 3), I’ll add a forth, Forecasting.

  • http://pulse.yahoo.com/_UILJJUAZHOUCKXBVL47HSIRVJU Neil Frazier
  • http://www.clasesd.com Clasesd

    Nice post, Ok  im a begginner here with my business but the image you provide of the Xero software looks nice, so it might be a good option for my startup…

    I just found your blog i have to admit that its quite amuse….

  • http://www.clasesd.com Clasesd

    Nice post, Ok  im a begginner here with my business but the image you provide of the Xero software looks nice, so it might be a good option for my startup…

    I just found your blog i have to admit that its quite amuse….