South African Entrepreneurs Thinking BIG: Business ideas, success stories, marketing and innovation

The Finance Code: Four Keys To Interpreting The Language Of Accounting


by on 28/08/13 at 9:01 am
No comments


UCT Head of Accounting says businesses can no longer rely entirely on financial managers and accountants for financial information – everyone in the organisation needs to have a basic grasp of finance if they want to be successful.

In the face of shifting business paradigms and organisational complexities, financial literacy could mean the difference between success and failure, says Professor Mark Graham, Head of the College of Accounting at UCT, and Programme Director of the UCT Graduate School of Business (GSB) Finance for Non-Financial Managers programme.

Graham says that too often the need for non-financial personnel to understand financial statements and financial jargon is not realised, and organisations suffer as a result.

“Finance is the language of business – and you’re not going to understand your business unless you understand what the numbers are telling you. In today’s constantly changing marketplace – no matter what type of business you’re in, you need to be able to prepare for and confront change as it happens. And unless you can speak the lingua franca of business – that’s not going to happen.
“Richard Branson, Bill Gates – these are successful businessmen who aren’t accountants, but I can guarantee they’ve always understood how their money is being spent.”

Graham says that there are four cornerstones to financial understanding. “If you can make sense of these, your business will fly,” he says.

Finance your business correctly
It is important to realise that how you finance your business can impact on its long term profitability. Although it may seem obvious, Graham says that unless you construct a plan to finance your business without incurring unmanageable debt, your business is sure to fail. “Through debt or equity – borrowed money or your own – getting the right balance of how you are financing your business, will determine the success of your business,” says Graham.

What do you buy?
Deciding which assets – property, equipment and other items of value that will benefit the business in the future – to buy, is important in order to ensure that the business moves in the direction you want it to. Graham says that being able to read a balance sheet will assist you in this regard, as they will give an indication of which assets can help your business, and which will not. “What are your options for assets, and how do you choose which to go with – unless you can read the language of finance, you might find yourself making the wrong choices,” he says.

Manage your assets
The day-to-day running of a business also requires careful financial strategy – understanding your financial statements will give you an idea of where you are making money, where you can stand to make some improvements, and then help you to choose the best options. “Once you’ve determined the best assets to invest in – profit and cash has to be made. This is the area that business thinking and strategies generally operate in,” says Graham.

Find the right balance
Graham says that as you make cash, you need to determine the best options on how to spend it. “How much do you keep for yourself, and how much do you plough back into your business? Too often businesses fail because they overextend themselves without preparing for the future, or risk stagnation by not taking calculated risks,” he says.

Approaching and understanding these four cornerstones of finance is an integral part of the UCT GSB Finance for Non-Financial Managers programme running at the GSB in October.

“We make the language of accounting and finance accessible and easy to understand,” he says. “Those attending will be taught how to read an organisation’s financial statements and explore their parameters. They will be given the tools to analyse cost behaviour and financial performance; will participate in creating a financial plan; and they will gain the knowledge and confidence needed to contribute to creating value within their organisation.

No prior exposure to accounting or finance is necessary in order to benefit from this type of education, says Graham. The course is specifically designed for non-financial people from any sector, those responsible for meeting budgets and containing costs, and for anyone wanting to understand the key drivers of performance in organisations

Ideate is one of South Africa's biggest business blogs, with a team of authors all of whom have had entrepreneurial experience. Ideate is read by entrepreneurs thinking BIG. Follow us on Twitter here. View more articles by Staff Reporter.

Tags: finance, UCT

Related Articles

Leave a Reply