The Language of Business

Let’s face it: Financial statements don’t often make the most compelling reading. Even accountants don’t usually spend their spare time browsing them but in a very real sense financial statements are the language of business, or at least the corporate equivalent of a CAT scan. If something’s gone wrong you can usually spot it there.

For the last several years I’ve had the privilege of helping judge a business model competition for undergrad business students at the California State University campus in my town. Each team gets the same set of facts and simulated business conditions changing throughout the “year.” These are seniors and the competition is always judged late in their final semester; while the students are often creative in many areas I am usually disappointed in their ability to dig the meaning out of even the simplest of financial statements.

The problem isn’t just with newly-minted bachelor’s graduates. A recent article on CFO.com explains that no less than insurance giant Marsh has implemented a mandatory finance education program for all of its 25,000 employees (which they call “colleagues”). One executive noticed that “the broad swath of our colleague base did not understand earnings, and all that goes with that. They did not understand how a public company functions or what its purpose is. I kept hearing funny comments like, ‘it’s a great day because the stock is up.’” Another noted that many didn’t have a very good feel for the decisions a company must make, what a company is held accountable for, or the purpose of budgets.

One of the new courses, for employees who work directly with Marsh’s clients is actually called “Speaking the Language of Business” and is designed to “provide a much deeper dive into financial statements” according to CFO.com, to help employees understand the value Marsh can provide for clients “by … smoothing earnings or making efficient use of capital.”

There’s no need to turn your entire staff into accountants but it really does help if all have enough financial literacy to understand their business and, if applicable, that of their clients or customers. We practice what I’m preaching here: our professional personnel with non-financial backgrounds are put through at least entry-level college accounting course to make sure they have some fluency in the language of business.

About the Author

+Brent Morrison is managing principal at Morrison, providing business valuations, business planning (including budgeting, cash flow forecasting, strategic planning), feasibility studies, interim executive CFO services, competitive grant writing and special projects that don't fit into any conventional category. You can contact Brent directly at bmorrison@morrisonco.net or via telephone at 530-893-4764 ext. 202.

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