It takes years to become an overnight success.

We're all familiar with Maxwell's equations, those four short and crisp formulas that define our electromagnetic world. Perhaps you've even seen the T-shirts with the equations, and at the bottom it reads: "and there was light."

There's only one problem with the equations. Yes, Maxwell did develop the essential electromagnetic theory, no question of that. But a fascinating article in Microwave Journal, "Twenty Three Years: The Acceptance of Maxwell's Theory" (July 2008), explains that his original equations were not the four we know today, but 20 simultaneous differential equations. Not only were they not accepted initially, they were incomprehensible to even the leading researchers and scientists of the day, such as Michael Faraday. Maxwell's equations only gained acceptance and actually became useful when the reclusive mathematical genius Oliver Heaviside reduced them to what we now call by that name.

The path to success in our industry is similarly convoluted, with lots of local swirls and eddies. Certainly, some products and standards become winners quicker than others, but we tend to forget how long it takes for even the faster ones to succeed. This forgetfulness makes both companies and their investors a pretty impatient bunch.

That is not good for the realities of complicated technical progress and accomplishments. Too many players want that quick ROI, despite all the evidence against it happening.

But we tend to gloss over the reality. For example, people use the term "Rosetta stone" as a shorthand phrase for a magic key that instantly unlocks a mystery, as if the engraved stone unearthed by Napoleon's troops in Egypt in 1799 was a ready-to-use translation guide between classical Greek, hieroglyphic, and Demotic symbols and words. The reality is that it took the scholars about 30 years to translate and correlate the texts and symbols, aided by many other sources as well as some luck.

Engineering success builds on the efforts of others, and even those celebrated "and-then-the-light-came-on" moments usually require follow-through, persistence, planning, execution and even luck to really make it, since so much can go wrong, whether due to internal issues and external events.

Dutch Kindelberger, chief engineer of Douglas Aviation and a leading aircraft designer, said in his autobiography, "No one ever pulled a rabbit out of a hat that somebody didn't put in there first." There's a lot of truth in that to keep in mind.

Copyright [c] 2008 United Business Media LLC.

Bad bookkeeping habits can affect your business.

"How do you know that my financial statements aren't accurate?"

That is a question that I get over and over when I ask contractors for their financial statements. It's actually pretty easy to tell. The first major clue is negative cash on the balance sheet.

Let's say that I look at a contractor's balance sheet. It shows negative cash of approximately $11,000. This is usually wrong because no banker is going to let you have negative cash in your checking account.

What usually happens is that the bookkeeper printed out all of the checks to vendors that needed to be paid. Unfortunately, there wasn't enough cash in the checking account to pay them all. So the bookkeeper holds the checks. The computer program doesn't care if you have a negative cash balance. All it knows is that accounts payable were decreased because the checks were written. It never checks to see if there is enough cash to pay the bills.

Holding checks screws up your ratios. You don't have a true accounts-receivable to accounts-payable ratio. You think bills have been paid and they haven't. Perhaps you'll have a false sense of security until one Friday afternoon, after the bookkeeper has gone home, you find a pile of checks in his or her office that haven't been sent.

OK, that's too easy to spot. What's next? A round number for inventory or inventory that never changes from month to month on your balance sheet. No contractor has exactly $5,000--or $29,995--of inventory. The Internal Revenue Service loves to use that as an audit warning sign. If you enjoy a visit from the IRS, just leave inventory as a nice, round number.

Accuracy

Without accurate inventory and job costs, you don't have a clue how good your inventory "bets" have been. You don't know if your material usage is too high. At the end of the year, you don't want a surprise. If the inventory shows $50,000 on your balance sheet and your count is $40,000, then you have an additional $10,000 in material expense and $10,000 less profit on your bottom line.

Where did the $10,000 go? It's easy to figure out: leave materials on a job, damage them in trucks or take two parts where only one is needed. And unfortunately, thefts happen occasionally.

Remember back to the first time you used a set of gauges? Confusing, wasn't it? But after a while, you didn't have to think when putting gauges on a system. It was easy. Financial statements are the same thing--they are tools. The first few times they are confusing. However, when you work with them regularly, they become easy to read.

Here are some other problems to look for when perusing your balance sheets:

A balance sheet that doesn't balance. When the balance sheet doesn't balance, warning bells should be going off in your head. No bookkeeper should ever give you a balance sheet that doesn't work out. However, I've seen plenty of them.

If your bookkeeper can't pass my bookkeeping test, he or she shouldn't be doing books for your company. Anyone who doesn't have the test and would like it, please e-mail me.

Negative payroll taxes payable. The likelihood that you overpaid your withholding taxes by thousands of dollars is almost impossible. If you see negative financial withholding on your balance sheet, then something was probably entered incorrectly.

Negative loan balances. Again, the likelihood that you paid more than the bank required to pay off your loan is slim to none. If you see negative loan balances on your balance sheet, then look for the entries that are wrong.

No rent or utility bills, or extremely high rents. This usually means that one month has double overhead expenses and another month has no overhead expenses. One month you earned a great profit without any expenses. Another month you earned no profit or were at a loss, which meant double overhead expenses. Both months' financial statements are wrong. Make sure that the overhead that you expect in each month is there.

Inconsistent gross margins. If a department's gross margin widely varies from month to month, the most likely cause is a sale in one month and expenses against that sale in another month. Make sure that you match sales and expenses in each month.

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