How Entrepreneurs Can Fill the “GAAP”

Source: Wall Street Journal
Date: 12/12/2010
Author: Mike Michalowicz


About the Author: Mike Michalowicz is the author of “The Toilet Paper Entrepreneur.” He is an advocate of a business philosophy by the same name, believing the greatest business successes come from underfunded, inexperienced entrepreneurs. His website is www.ToiletPaperEntrepreneur.com.


I know I will be lambasted for this, but it needs to be said: The GAAP is wrong.

Before you hit the “comments” tab, let me clarify. I do believe following the GAAP (Generally Accepted Accounting Principles) is important so that when the time comes, you are prepared to submit financial statements for investors, mergers or the IRS. However, using the GAAP as your primary accounting method is the wrong way to grow a hugely profitable business.

I’m not saying this revelation is as significant as Galileo’s argument that the sun is the center of our solar system. But it is similar in that he encountered opposition from people who firmly believed that everything in the sky revolves around the earth.

Replacing GAAP to track spending, enhance cash-flow management and assess the health of your company makes you a Galileo since you’re going against what “everyone knows.” Just because something appears to be true and “everyone” goes along with it, doesn’t mean it makes sense—and it doesn’t make it true.

 

Learn more from Mike on how to improve the GAAP >

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