So, most people don't understand what entrepreneurship and accounting have to do with one another. 

Accounting is:
  • following GAAP language and rules
  • enforcing GAAP

I'm kidding. Sort of. Accounting is a subject that deals strictly with logic. No marketing plans, no thinking about the next project or service to increase the profit margin. Just plain logic that fits neatly into journal entries. It has no concept of risk or fear. No idea what additional services can be provided. It's a very basic, intricate, time-consuming, still basic thing. 

However, entrepreneurship is all about risk. It's about tolerance and defying logic to start something new. Entrepreneurship is the desire to create something, to provide something entirely new. On the surface, Accounting and Entrepreneurship are super dissimilar. Accounting has a solid footing in logic and practical duties while Entrepreneurship is the crazy person in the corner yelling things about a new tool to trade pennystocks.

In my accounting classes, I'm learning things like sales funnels and manufacturing statements, along with really interesting new ideas on the financial statements that makes everything more complex and puzzling. In my entrepreneurship classes, I'm learning ethics, how to estimate ALL THE THINGS in a business plan, how to consciously think about what product to sell.

In accounting, we don't really care about the product/service itself. In entrepreneurship, the product/service is the main subject.

This makes sense to me, because a business cannot be based all on numbers or all on the product. It has to have a combo so that you always know where you are related to the other one. Product bigger than the price, you have a problem. Vice versa and it's still a problem.

So know your profit margin. It's the easiest way to get ONE number you need for your business. With this one number, you know how many you need to sell to cover your fixed costs.

Profit Margin/unit = 
Selling Price - Variable Cost to make one unit


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    October 2013


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