Common Cents # 7

Common Cents #7 - Where Are We?

George Gruhn owns Gruhn’s Guitar in Nashville and is considered to be the world’s foremost authority on guitars. He started his business when he was in Graduate School at the University of Tennessee in 1971. He currently hosts a weekly Zoom-cast on Friday afternoons and I’ve really been enjoying hearing his interesting ideas, honest opinions, and personal stories from his many years of being in business.

Mr. Gruhn answers questions that people send in on a wide range of subjects. Recently a writer asked if he had any regrets after 50 years in business or if there was anything he would have done differently. He immediately said that he wished he had taken business courses in college, or at least hired a business manager early on. He said if he, or someone on staff that he trusted, had been better versed in things like insurance, taxes, and accounts payable, he would have been much better prepared to face the highs and lows of the business and the economy in general. If we own a business, the details and skills of operating the business are just as important as the actual service it provides or product it creates.

I have been a business owner for 55 years. For 45 of those years the business has been photography. I have never claimed to be the world’s greatest photographer. In fact, I spend much of my time studying other people’s photographs and searching for ways to improve mine. I have been able to make a living in photography because I was a businessman first. The product I sell is photographs.

During the years that I was a tax professional, many of my clients were small businesses. It was amazing when a client would come in with incomplete records, disorganized records, or in some cases, no paperwork at all. They had no idea how they were doing and had no clear way to make wise business decisions without adequate data. A lack of contemporary records or inadequate records is also the fastest way to get audited. If a business cannot provide organized records and receipts with adequate documentation to the IRS to support the tax return, it will lose the audit process every time.

Even if we do not own a regular business, our households should be considered to be small businesses. My wife and I consider ourselves “Jim and Louise, Inc.” Though we are not actually incorporated, we could be; we keep detailed records as if we were. We have current balance sheets, monthly income-expense statements, and keep an ongoing account of projected cash-flow. We do this for both our personal finances and for my photography business.  It takes less time than one might think once the files are set up with the information that one needs to be recorded.

If we look at a map to see how to get to where we want to go, the most important thing is to determine where we are now. The big advantage and the beauty of GPS is that it shows where we are now. The direction we want to go in our financial life is the same.  A Balance Sheet, sometimes called a Net Worth Statement, is where we are now. It is a snapshot. It is a list of what we own, our assets, and everything we owe, our liabilities. Subtracting the liabilities from the assets gives our net worth. Its usefulness comes from having a series of balance sheets over time to see if our net worth is increasing or decreasing. We can increase our net worth by either increasing our assets or lowering our liabilities.

Deciding where we want to go in our financial life becomes possible when we see where we are now, and whether we update the numbers ourselves or pay someone like George Gruhn wished he had, it is valuable information for our progress toward our desired goals.

Jim Mathis