What would it be like for you if you only had one leg?
How would walking work for you? Probably more like a hop I suspect!!
This is how many people think about the money side of their business.
They never think about the ‘other side’ of what they’re doing.
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Banish One Step Thinking Part 1
1. Banish One Step Thinking – The key to better
understanding (Part 1)
April 14, 2009
What would it be like for you if you only
had one leg?
How would walking work for you?
Probably more like a hop I suspect!!
This is how many people think about the
money side of their business.
They never think about the ‘other side’
of what they’re doing.
Cause and effect never enter their minds because they’re completely focused on the
single task at hand.
Let me give you an example:
When you make a sale, what do you get?
The answer you may have come up with was CASH,
but in most circumstances you get an account receivable.
It is a two step process to get to CASH!
How about when you make purchases?
Most of you would hope you could get the goods on account
and then at a later stage pay the supplier.
Again this is a two step process.
Now the fun begins in bringing these two types of transaction together.
In a business most people want to know what their profit and loss account shows them
so they try and match their sales and purchases together to see what profit they made.
BIG PROBLEM
For many people this is a complete miss match because they use a two step process
for their sales and a one step process for their purchases.
What do I mean by this?
2. Most computer programmes automatically do a two step process for sales.
When it comes to purchases the same is offered but people choose to ignore the
accounts until someone is screaming at them to pay and then AFTER paying they
enter the amount into their books.
Think about it. What sort of profit and loss account is this going to produce?
A miss match of sales and purchases which will tell the business owner absolutely
nothing about their real profitability!
The learning here is to make sure that you use the same process for sales and
purchases in your books. There is another step which I’ll talk about in the next post
which relates to matching real sales against cost of sales. This is different to
purchases so look for part 2 in this series.
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