Saturday, December 29, 2007

Finding Success in Business

By Sean Anderson

A lot of people give advice about how to run a successful business. I tend to think of business from an accounting perspective. You need to have controls and know something about the financial picture of the company. Then again, there are a lot of morons out there that just seem to be lucky. They don't have any controls in place and(or) know anything about accounting.

A lot of people say that if you love what you are doing you will be a successful business owner. This is where we start to get on track a little. If you explore this further you'll find that there are a lot of people who are successful business owner that absolutely hate what they are doing.

The key is balanced obsession. Sometimes people aren't even obsessed about the business they are running. We've all heard of the crazy CEO who likes to base jump among other things. In the end of the day they run a successful business because that is what supports their obsession.

Obsession can bring out many traits key to business. For instance, organization. Organization is the foundation of some accounting and legal firms. Businesses seek out these entities due to their ability to keep track of every detail. At the same time that is their business. If manufacturing companies were to do this inefficiency occurs, and the business would eventually succumb to costs.

This is why balance becomes important. Balance is created by the management of obsession. Obsessing about lowering costs or anything else for that matter becomes a problem when it interferes with other parts of the business. Having balanced obsession is essential. You yourself should be obsessing about the essential elements to the business as they become relevant. If you lack the skills or drive needed assign someone else to the problem.

For instance, the morons I spoke of earlier typically have a well equipped accountants. They are obsessive about their clients and accounting. As long as you, an employee or an agency is obsessing about issues vital to your business you will be successful 50% of the time. Hey, if I could give some advice that ensured success I would be charging for this information.

Wednesday, December 26, 2007

Getting to the Interview

By Sean Anderson

I am an accountant. What can we gather from this statement. Well I am not uniquely creative, expressive or artistic. Even my writing style you can tell that I am bland. My job is to put numbers on a page to convey a meaning. I don't spend time formatting reports beyond standards set forth by accounting.  Other accountants understand this but you first have to get your resume in front of managers and executives. The first step to getting an interview is your resume and the means getting past the human resources hacks.

I loathe the HR department they're just a pack of freaking hippies. In many companies the resume hits their desk first and then they relay it to the accounting managers if they believe it has potential. They naturally don't analyze the resume the same way my pals in accounting would so your resume has to appeal to different types of people.  When deciding how to prepare your resume analyze yourself.  Should you be the one writing, is someone else better able to sell you?  These are question you should be asking.

I figured this out, and had friends from school help me with my resume out of college. In later job searches I turned to professional resume writers. I've done this because my sole goal is to minimize the remaining amount of time at my current job. I have had jobs were I have just wanted out, and if find yourself without a job you really need to take advantage of opportunities.

There are some people who have skills to write great resumes, others don't have those skills. When getting an interview focus on your strengths and outsource your weaknesses. This is the best way to maximize your potential. You are your own business and you are the goods being sold.

My personal strength is managing where I've applied and contacting companies. I put excel spreadsheets together that tell me where I've applied and when I should follow up. When to send thank you letters and takeaways from interviews I have had.

Everything works together when searching for a job but the core of your job search is your resume. If writing and designing a resume isn't your strength outsource the process. There are plenty of places, and it isn't inexpensive in relation to the amount of time spent sending out a poor resume that doesn't attract responses.

Tuesday, December 25, 2007

Subprime Lending Placing the Blame

By Sean Anderson

A lot of CEO's, CFO's and whole companies have been blamed for being a part of the sub prime lending problem. People have had their homes foreclosed upon by banks and the market has suffered as whole. The real culprit of the sub prime problem has skated by un-blamed and has not suffered any consequences. Who should be sharing in the suffering? Well it should be the two bond rating companies Moody and Fitch. They pass judgement on the quality of bonds and they gave the bundled sub prime mortgages a much higher rating than they deserved.

This in turn caused pressure to be placed on investing groups to seek the higher returns being offered by bonds that were perceived to have a lower level of risk due to Moody's and Fitch. The criteria for making decisions was flawed and so became the market. Mortgage lenders kept writing sub prime loans, because they were seen as good investments by funds and financial investors like CitiGroup.

The good ratings given by Moody's and Fitch sent a signal to sub prime lenders that the fraudulent activity of writing and packaging mortgages to undeserving lenders was acceptable. Moody's and Fitch provided the environment to make this possible. This does not mean that banks did not consciously ignore sound lending practices in making decisions. It does not take a lot of skill to see whether someone will be able to barely make the mortgage payment. If they are working overtime and decide to stop it is easy to tell they won't be able to make they payment. It is easy to tell that given the conditions of the loan are based as an ARM when the interest goes up and the payment becomes three-hundred or more per month that the borrower is not going to be able to make the payment.

At the end of the day everyone could have used better judgement. Moody and Fitch put into place ratings that disguised this practice. They covered up the problem and the ratings caused investor to gravitate toward a problem. They set the trap and now we're caught.

Sunday, December 23, 2007

Debits Credits and The Accouting Equation

Why is accounting so powerful? It is because it is all based off of one simple accounting equation:

Assets-Liabilities-Stockholder's Equity = 0

Assets = Liabilities + Stockholder's Equity

Stockholder's Equity = Assets - Liabilities

Liabilities = Asset - Stockholder's Equity

Yes, all of these are one simple equation. Just a bunch of different variations, to say the same thing. Always in balance, always able to provide information. The accounting equation is able to provide tons of information. By breaking this equation out further accountants, financial analysts and banks come up with more complex ways to evaluate a company. For instance assets can be broken into current assets and long term assets. By breaking up key information the ability to to evaluate key financial measures like liquidity is extended. Liquidity ratios answer a simple question, "Does X Company have enough money to pay the bills?" A simple but vital question financial statements answer.

Now that you understand the power of the equation let's discuss debits and credits. To understand debits and credits focus on the equation when it is stated:

Assets - Liabilities - Stockholder's Equity = 0

Debit and credits ensure that the equation is always in balance. Most people think of a debit and credit as a positive or a negative a left or right. Before you know it your lefts and rights are all mixed up and you find yourself in a tangled mess. They are just two opposites that offset each other when on the same side of the equation. Debit and credit must always equal each other. This creates the balance, it is that simple. They allow the parts of the equation to change but the ultimate outcome is always zero.

Zero serves the function of a check figure. A credit always offset a debit creating no net affect. That is it. The numbers change but the balance remains. This dichotomy is how we keep track of the changes occurring in our business's financial picture. This whole process is referred to as dual entry accounting.

People generally get confused over a little accounting trick. Basically, it is how we develop an income statement. All accounting information is used to effect the balance sheet. The income statement is created by separating a portion of the entries into income and expense accounts. Since, the offsetting side to these accounts usually have an effect on an asset or liability. The culmination of these income sources and expenses are collected in retained earning at the end of the accounting period. The whole time being offset by assets and liabilities. The balance sheet account that collects the income and expense are often called current year retained earning which is equal to your net income and comprise the P&L.  So to summarize expense and income accounts are just a breakout of current year retained earnings.

This allows for balance and difference to co-exist. Obviously, you want to be able to tell what you've earned so take expenses from income and that positive number (hopefully) leftover is your profit. If your not running the business efficiently that negative number is the loss.  At the end of the day the credit to income eventually turns into a credit to retained earnings increasing what the owner's percentage of the balance sheet.

Bring accounting down to the level of simple concepts. Accounting is the documentation of a transaction that is it, don't over complicate the process.