Back in 1990 I was a young salesman taking over a business that had gone into receivership. There were three of us involved, but the other two refused point blank to get involved in the accounts side of the business, so it came down to me.
Fortunately I had an accountant who was willing to come in each month and go through the accounts with me, and from him I learned all about double entry bookkeeping. Well I say all about it, I mean enough to understand that everything has to balance and that the numbers never lie. That experience has stood me in good stead ever since.
A medieval balancing act
Every business in the world has to thank a Franciscan monk, Luca Bartolomes Pacioli, who first described double entry bookkeeping in 1494. He was about fifty years old and it was just two years after Columbus discovered America, when Pacioli returned to Venice for the publication of his fifth book: Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportion). It was written as a digest and guide to existing mathematical knowledge, and bookkeeping was only one of five topics covered.
The Summa's 36 short chapters on bookkeeping, entitled De Computis et Scripturis (Of Reckonings and Writings) were added "in order that the subjects of the most gracious Duke of Urbino may have complete instructions in the conduct of business," and to "give the trader without delay information as to his assets and liabilities." These medieval merchants were as financially savvy as any modern day businessman.
Applying Newton’s law to business
Recently I took on some new people in my customer service/sales team. Neither of them have any experience in running a business and I was very keen to explain to them that Newton's third law that, “every action has an equal and opposite reaction”, is just as applicable to business as it is to physics.
After spending some time talking to my new guys about how every action of theirs has an impact on the business, I realised that although it is second nature for me to understand the ‘balances’ of a business, for people new to the business world, and even for some seasoned campaigners, just understanding that “every action has an equal and opposite reaction” can be a life changing moment. I never thought that induction training for new recruits would involve double entry bookkeeping and physics!
Really, all business comes back to double entry bookkeeping and understanding that everything you do has to balance. Because of the nature of modern day business, most accounting systems are computerised, and are usually very efficient, but the use of ledgers and inventories has been formalised for over 500 years and when we examine our bank statements or company’s balance sheet at the end of every month we should give thanks to Luca Pacioli and Isaac Newton!