Whatever your responsibilities are in your business or organi-zation, you need accounting skills to perform at your best. If you are in sales, you learn your product’s features and how to show them to buyers. Those features include the cost or value propo-sition and how it affects your customers’ buying decisions. Marketing managers study how to find and appeal to a product’s target groups. Working up price points can mean some detailed cost analysis. Production managers learn how to plan workflow to control costs. Senior managers use financial statements to speak to those outside about their business’s prospects. Whatever your management level, you need to know accounting because your decisions will often be determined by “the numbers.” That is how managers keep score and are graded. That’s why you bought this book and that’s what we’re going to give you. Fasten your seat belt. We’re taking off!

Visualize: Many successful managers find it easier to visualize or imagine what they are trying to learn. This technique helps them bridge from the known to the unknown. You’ll find several visual image examples used throughout this book to help you see key concepts clearly. Because accounting often deals with numbers and abstractions, it’s useful to work with these images as a guide to better understanding.

Visualize to Understand: Start with an aerial view. Imagine your business or organization as a country. It may be a big country or a small one. You may live in a small town or the bustling capital. Your country has mountains and forests, fields and farms, rivers and lakes. Next, imagine that all the cash that comes into your business is water. Water helps your crops to grow. You can dam water to make power to drive your factories. Store the water in lakes to save for the dry season. You can give water to your people to slake their thirst. That water may come from distant springs high in the mountains. It may come as a river that flows by your door. It may be piped to you across a desert. But it must come to you. And you must manage it. In the desert colonies of the old Southwest, the Spanish governors set up the acequia, or water management system. You can still see its charming canal running through Santa Fe and it is still working, providing water for gardens throughout the city. The canals are called domos and the manager is the majordomo, or canal manager. It is a very important job. The canals must be kept clean and in good repair, and he organizes this work. In addition, the canal runs through the property of many people. Each is supposed to take water only on a certain day, so that everyone has enough. The majordomo makes sure everyone follows the rules. An accounting system does for your business exactly what a water-management system does for a city. It makes sure that the money that comes in flows to all the right places. It helps you make sure that you know where the money is. Accounting, or money management, is the art of knowing where the money is and making the right decisions about what to do with it so that your business will grow. If the money doesn’t come in, your business or your organization will die an agonizing death from thirst. Many of the dot-com start-ups of the late 1990s began with a large pool of venture capital cash. They had high liquidity. The managers, more often than not, spent that money on fancy furniture, equipment, and offices and on heavy advertising, and

large salaries. The venture capital cash poured out before any comparable flow of cash came in from customers. The result? All the cash drained away and businesses died of thirst. In Chapter 3, we will cover cash flow. This short example should give you an idea how important it is to manage cash flow. Pay close attention when we get there: this is a lesson that could have kept some dot-coms from turning into dot-bombs. Then, in Chapter 4, we’ll cover some ways you can actually measure the liquidity/cash position of your business.

Liquidity Ability to meet current obligations with cash or other assets that can quickly be converted to cash.The more cash, the more liquid.The less cash, the less liquid. So, the first thing your business needs to become real is cash. How do you get that cash? You can get it from selling things. You can also get it through a loan. Almost all businesses start with a loan, whether from the owner’s savings, money collected from friends and family, the basic venture capitalists, or a bank.

If things don’t pan out, you may be able to mournfully bid farewell to your money. Family may be grudgingly forgiving. However, friends and banks have this quaint idea that they want their money back. Therefore, you need a way to track all those loans coming in. Who gave you how much and when? What did you spend the money on? Goods to put on the shelves? The shelves themselves? Then, a miracle occurs. That first customer or client comes in and gives you cash for what you sell. What do you do with that cash? Buy more goods? More shelves? Pay off your parents? The bank? Things are going to get really complicated really fast. Your accounting system and your understanding of how it works will save you. Your accounting system is nothing more than a series of locks, lakes, and levees for your cash flow. It’s a way of channeling and classifying the cash so that you can start to make some decisions about what to do with it and how to get more of it. You’re now doing what a manager does: you’re controlling and directing resources. Hold that image of cash as water in your mind for another moment. It can easily evaporate. It can easily trickle away. You now begin to appreciate how important tracking what happens to that cash can be. As a manager you assign resources: people, cash, materials, time. You need some way of knowing where your resources are, what they should be doing, and how well they’re doing it. Think like an Owner: “Wait a minute,” you say.“I’m a first-line supervisor in a machine shop.What do I need to know about starting and running a business?” Here’s a news flash.The key to becoming a successful manager is to start thinking like an owner.That single attitude adjustment will put you head and shoulders above many, if not most of your peers.You will now start to see the relationships between and among business activities. Make that adjustment and you have earned

back the price of this book in multiples of thousands.Of course, the second key is to wait until you’ve absorbed and practiced the lessons in the rest of this book before telling the CEO how to run the business.

The Accounting System: You need an accounting system that’s the right size to handle the demands of your business. It also has to be well designed so that it gives you the information you need. Many businesses can be managed successfully with nothing more complicated than a

checkbook register. As volume increases, however, you may go to a manual system or a computer spreadsheet. Higher volumes and more transactions demand a computerized system. These

systems range in price from under $500 to well into seven figures for large organizations.

To start another image in your mind, your accounting system is the plumbing of your business. It is the way you direct, match, and track your resources. What were the sales of Product X? How much time did Bob spend on Project Y? Am I over my travel budget for the year? These answers come from your accounting system. The plumbing in a pup tent is pretty basic. As you move up in complexity, the plumbing in a 1000-square-foot house with one bathroom and one kitchen is simpler than in a mansion with a dozen bathrooms and several kitchens. You want an accounting system that meets your needs. The information an accounting system provides has two faces—external and internal. To provide these two different views, your accounting system divides into two parts—financial accounting and management accounting. Each of these areas is a separate discipline in its own right. Financial accounting is the face your business shows the outside world. Here the daily “gozinta” and “gozouta” become the financial statements that you present to your bank, your stockholders and investors, and taxing authorities. These financial statements are basically historical records that cover a particular time period. It could be yesterday or a year. Each has c tain valuable information to help managers makedecisions. We will cover financial accounting in Chapters 2, 3, and 4.Management accounting can be thought of as real-time accounting. It provides the information you need to run your business, and it begins with day-to-day

record keeping. Gathering this information on the “gozinta” and “gozouta” forms the basis for many of your managerial decisions. These numbers can be sliced and diced many ways to help you do your job. We’ll cover management accounting in Chapters 5, 6, and 7.