When Warren Buffett speaks, people listen. He is a master storyteller. Buffett has been quoted saying, “Accounting is the language of business, and you have to learn it like a language.” Mr. Buffett makes great investments in great companies. “To determine a great company requires an understanding of accounting and the ability to read and interpret the basic financial statements of a company– balance sheet, income statement and the cash flow statement,” he says.
Having worked with several hundred business owners over the past 14 years, I can clearly see different levels of fluency in accounting as the language of business. One client I just started working with this year can read the income statement, but not interpret it. This business owner can’t read or interpret the balance sheet or cash flow statement either. Many business owners can read and interpret their income statement, some can interpret their balance sheet. But very few can read and interpret their cash flow statement. The reasons why vary, but most did not take any accounting courses in school and there’s no on the job training in accounting for the owner. Many rely on others to interpret their financial statements.
I took two years of Spanish in high school and could barely string together a sentence or two. If accounting is like learning a foreign language, it will take time and a good amount of practice to achieve fluency. It’s likely a local community college or university will offer courses (online or in person) as one option. Accounting is often under-appreciated and therefore underfunded in many businesses today. It’s one of the biggest weaknesses in growing firms.
Take a page out of the Warren Buffett business owners’ playbook and learn how to speak and become fluent in accounting. Learn how to read and interpret each financial statement to understand the financials of your business. When I started The Profitability Coach 14 years, my primary aim was to make business owners better financial managers. If you become fluent in accounting, your financial confusion will turn to financial clarity.