Articles - Business / Client Dev & Marketing

Eighty percent of the United States economy is comprised of small to medium sized privately owned companies, however fifty percent of those companies fail in the first five years. Statistically, entrepreneurs’ starting new companies is as common as having a baby, unfortunately the death of a start up is equivalent to the divorce rate in America.

What creates such an inverse relationship for the primary blood line of our country? The following three articles we will cover the major reasons why small privately owned companies fail.

Reason #1:  Financial Accounting versus Managerial Accounting Methodology

Most business owners understand little about the key financial operations of a company as far as accounting is concerned. Holding “two-sets” of books to run a company has a negative connotation, and many individuals think of this as an act of fraud when referring to financial balancing in such a fashion. However, having one set of books for the IRS, and one set for internal management purposes is precisely what every successful company should be doing. In reality all companies should own two sets of books, but the reason is far from illegal purposes.

Financial accounting is used for audits and taxation purposes. Depending on what type of legal entity a company operates as (S-Corp., C Corp LLC, Partnership, Sole Proprietorship or other complex entity), year end data must be reported to the Internal Revenue Service to verify taxes due and or paid. In other words, financial accounting methodology is used for legal reporting methods.

Managerial accounting is derived to assist owners of a company in following a clear path of what the firm’s financial condition or “heartbeat” of the company is on a daily, weekly, monthly and yearly basis. The methodology is not an illegal practice, but a desired one for profitability that very few follow due to lack of understanding. Managerial accounting is based from the same numbers utilized in financial accounting, but re-organizes and calculates the numbers in a structure that assists in the business owners understanding on how to run the daily operations of the company. The IRS is not concerned with your net profit margin or break even point, but the owner certainly should be for maximum profitability.

Financial accounting will detail directives provided by the IRS for reporting measures, however it will not determine weekly or monthly margin percentages, comparative losses or gains on seasonal products over several years, 3-5 year projected budgets, comparative analysis on all expenses and costs of goods sold, overhead waste, break even points, labor costs percentages versus subcontractor costs, and other optimal percentage ratios to follow as a daily guild to operate a business. Once a managerial accounting system has been implemented, the business owner can utilize his books to grow the company and monitor the growth/decline of the organization on a daily basis.

The most basic accounting software’s offer these tools such as QuickBooks and Peachtree, in which 90 percent of small business owners are already using. The major problem for most owners occurs in understanding how to implement managerial accounting into the systems for personal use. Ask your CPA why he has not established a system for managerial bookkeeping, and he will reply “you never asked”.

Same numbers….different books ….different story.

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BIOGRAPHY

Dr. Melissa Luke is a practitioner in the financial and securities markets, specializing in maintaining positive economic conditions within domestic and international organizations for maximum profitability.

Dr. Luke has directly worked with top agency authorities such as the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and the Public Company Accounting Oversight Board (PCAOB) to increase knowledge base for university students and business owners nationwide.

She assists leaders in maintaining corporate vitality and economic growth within an organizations strategic structure and shareholder realm.

Melissa was a professional guest speaker, conducting seminars nationwide and in Canada on market makers, electronic control networks, arbitrage, Level II systems, technical approaches, and crisis prevention methods for corporate securities and welfare, and the Sarbanes-Oxley Act of 2002.

She has published securities educational methods for global distribution, and has worked with several foreign governments on securities issues.

Dr. Luke beta tested the primary software systems used for many of the major brokerage houses and online trading entities prior to the inception and implementation to the general public. She also trains all levels of organizations and corporations on the identification process of corporate malfeasance and fraudulent activity, to protect the corporate executives and public shareholders.

She educates 21st Century organizations, investigates wrongdoing, conducts extensive research on the intricacies of the Sarbanes-Oxley Act, and recruits knowledgeable professionals on the requirements of compliance of corporate fraud utilizing her prior experience working for the United States Treasury.

Currently, Dr. Luke analyzes corporate legal entities, methods of operation, systems, internal controls, employee management, ownership, and corporate structure to maximize profitability and provide recommendations to improve ease of operation, productivity, and profitability of small to medium sized business in the United States.

She also teaches undergraduates at Boise State University as an adjunct professor in management and doctoral students at North Central University in finance.

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