Business is a balancing act

    More than once in my business career I have proudly handed over my companyís current financial statement to a banker or a creditor, all the time praying they wonít ask any questions.
    Itís not that the figures are inaccurate. They have been put together by Ms. Ferguson, my loyal office manager, and then checked by our CPA.
    No, I believe the numbers are right on target. The reason I donít want any questions is because quite often I am unable to explain what the figures mean.
    It can be quite embarrassing. "Looks like your company is in pretty good shape," says the banker as he scans the balance sheet. "But how do you explain this line item for accumulated amortization on your leasehold improvements dropping so dramatically from your last statement?"
   "Hell if I know," I reply. "What do you say we go have a beer?"
   "Your retained earnings are not what I expected," he continues. "Is this a reflection of your taking too much of a draw or perhaps an undercapitalization of common stock?
   "How about taking in a baseball game?" I ask. "Do you like ball games?"
   But he is unrelenting. And I know what heís thinking. Heís wondering how some schmuck who knows very little about the basic rules of accounting can actually manage his own business.
   So I throw him a tidbit. "Debits left, credits right."
   He gives me a strange look. I do know something about accounting. Or is it debits right, credits left? Damn, itís one or the other. I should have kept quiet.
   At least I know Iím not alone. Every so often I get solicitations in the mail for seminars preying on poor, lost, unfortunate souls like me.
   All of them tell you that in one fun-filled day you will learn how to understand and analyze financial statements. Theyíre tailored to the "Non-Financial Executive," or "Non-Financial Professional," meaning they recognize you are a complete dunce.
   I tried one once, many years ago when I was young and ambitious, thinking there was no limit to my learning. I remember being put off by the Mr. Rogerís Neighborhood tone used by the instructor.
   "Ok, class," he would say. "This is a balance sheet. Can we all say Ďbalance sheet?í Good. Mr. Hoppe, youíre not participating. Remember, if you werenít such a dunce, you wouldnít be here.í
   I listened and I learned. I recall walking out after the seminar wondering how I could have complicated something that was so inherently simple.
   I also remember looking at a balance sheet three days later and having no clue as to the nature and placement of particular line items.
   The information goes in my brain, but lingers for a limited time only. Iíve pinned the retention period down to about 12.5 hours or when I go to sleep following the lesson, whichever is sooner.
   There it exists, replaced by a dense fog that doesnít lift until everything is explained to me once again and I have total recall Ė for about 12.5 hours.
    I have come to the conclusion that, to use the catch-all phrase of the times Ė I just donít get it. And never will.
   The fundamental rules of accounting will always find a way to elude me. Iíve never quite understood the logic behind making a balance sheet balance. If assets far outweigh liabilities, why not just go out on a limb and say so?
   And why are retained earnings and capital stock placed on the "liabilities" side of the balance sheet? Iíd modestly like to consider my retained earnings as an asset, thank you, but the principles of accounting wonít let me.
   This most practical of professions sometimes seems so impractical. It comes so easily to some, so difficult to others.
   Iíll probably never cease trying to get a solid grasp on the basics of the profession. I recently read another pamphlet, entitled "Understanding Financial Statements Ė a Guide for Non-Financial Professionals." The whole section on balance sheets was only about 10 pages long.
    I read it carefully and voraciously, understanding every word. The mystery solved itself, line by line. I finished, hardly believing I had been so thick-headed in the past. This was easy.
   My mistake was reading it right before I went to bed. I wasted most of my 12.5 hours of comprehension.

 

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