Financial concepts are widely accepted as the “language of business.” Every company effort eventually comes down to the return on investment. No matter how groundbreaking your product or noble your mission statement, money is at the core of your business. If you speak the language of business, you will find that you have a better understanding of every aspect of your company. If you are working toward a career as an accountant, learning to speak about finance can help you stand out.
Mastering Key Terms and Phrases
One of the first steps to mastering the language of business is learning the most important terms and phrases. Understanding the meaning of profits, free cash flow, and cash equivalents is crucial. Learning the right terms will ease your journey and make things far more comfortable along the way. The above terms are generally defined as:
Profits: a financial gain
Free cash flow: measure of a company’s financial performance
Cash equivalents: assets found on a company’s balance sheet with high liquidity
If you speak the language of business, you may be able to accurately evaluate the health, history, and potential of a company. Whether you are evaluating investment potential, managing small business finances, or offering professional recommendations to hopeful entrepreneurs, it’s crucial that you understand key financial issues. You should know how to read an income statement, balance sheet, and cash flow report, and really understand what these documents are telling you. If you are fluent in finance, you can find a wealth of information waiting within those numbers.
Understanding Differences in Dialect
The language of finance has its own dialects that will vary from one type of business to another. The Kauffman Foundation cites two of the most common variances as accrual basis accounting and cash basis accounting. In accrual basis accounting, income and expenses are reported as they occur, though cash may change hands at a later date.
Cash basis accounting is used to record income and expenses as the cash becomes available or leaves the business account. Though you may sell a great deal of product in a certain month, these transactions won’t appear on financial statements until the invoices are paid. Depending on your business processes, this may take 30, 60, or 90 days. According to the Kauffman Foundation, cash basis accounting is generally considered to be less accurate. However, either method can offer valuable financial information when you understand the subtle differences between these “dialects” and interpret your information appropriately.
Reading Through a Financial Lens
With a proper accounting education, you will find that you can look at any situation through the appropriate financial lens. This is critical if you want a clear and accurate view of a business’s health, history, and potential. If you look at a company through the lens of their marketing campaign, sales records, or human resource files, you may find a wealth of fascinating information but less depth than you need. While these can add interest to a company’s story, they may not offer the crucial facts that you will find in financial details.
Those who aren’t familiar with the financial aspects of business operations can miss out on everything from major warning signs to promising indicators of financial health. With a bachelor’s of accounting degree, you can interpret data correctly and glean the most essential information from basic financial reports. You can also understand the finer points of these records and how accounting ties in to all other essential business functions.
Translating Well for Others
Speaking the language of business isn’t only critical for your own personal business understanding; it’s also a valuable leadership tool that can help you translate important information to others. In Strategic Finance Magazine, Dal Gervasi, CPA, CBPA and Stephen King, CPA, CGMA made a compelling argument for aligning HR activities with the company’s financial systems. A well-informed accountant can help HR professionals understand the critical monetary value of employees as it applies to salaries, hiring expenses, and benefits costs. This can realign human capital management strategies, highlighting the critical role of the accountant.
If you speak the financial language fluently, you can translate otherwise complex numbers into understandable information. You could be poised for a position in accounting management or on the executive team.
Evaluating the Financial Story
A company’s financials tell a critical story. This is the story potential investors really want to hear about. It’s the tale that banks and credit lenders are interested in. Financials have all the essentials for a cogent account of a business. Unfortunately, many business owners don’t fully understand the story that these financials tell. With a Bachelor of Science in Accounting degree, you can learn to unravel the tale, giving your business an edge that many others might lack.
The Certified Public Accountants at DHJJ recommend that a company’s financial story span the last three years at a minimum. It should include a clear profit and loss statement and balance sheet. If you comprehend finance, you will understand how these reports relate to core accounting principles, and exactly what they are telling you.
Most businesses will tell their story in accrual basis statements that include prepaids, accounts receivable, accounts payable, fixed assets, and other accruals like payroll, taxes, and vacation. With an accounting degree, you will understand the complexities of all these documents and how they integrate with other aspects of the business.
When you have a clear understanding of your company’s financials, you can understand how to tell its more important story in a way that’s both compelling and confidence building. Knowing how to craft and decode a strong financial story is critical for professional accountants.
If you are ready to start learning the language of business, consider pursuing a bachelor’s of accounting. The Maryville University Online Bachelor of Science in Accounting program can help you understand and communicate in the language of business. The program will prepare you for a career as a financial analyst, financial manager, budget analyst, accountant, and more. Whether you want to get into the financial world full-time or simply use your knowledge as a strong foundation for accounting pursuits, this language can help.