Numbers are the language of business. If you own or work in a business and don’t understand the numbers of that business, you will not be able to do your job as well as you should be able to. Bad accounting — not paying attention to the numbers you do have available to you — is one of the primary “business killers” that causes businesses to underperform, or worse, fail altogether. Even having a business degree is no assurance that someone understands the numbers they need to understand to be successful.
For several years, we worked with a painter here locally. He was a Mexican American named Miguel. Miguel used to encourage all of his workers to go to night classes to learn English. He told me he would say to his people that if they didn’t learn the language, they would be doomed to a lifetime of working for him or someone like him for less than they should be earning. But if they did learn the language, they could have their own business someday as he did. He went on to say that if you were an American trying to work in Mexico and didn’t understand Spanish, “you would end up either dead or broke, or both.” Why would someone try to work in business and not understand the language used there (accounting)? It doesn’t make sense.
When you don’t understand the financial fundamentals of the business you work in — just like Miguel’s workers who can’t speak English — you will not be as successful doing any job to help that business move forward as you would be otherwise.
As someone who teaches “New Venture Development” and “Small Enterprise Management” at the Sam M. Walton College of Business, my classes contain a mix of business students and those who have majors in other colleges. I would say somewhere between 50% and 70% of the students who take my classes do not understand what an income statement is, what a balance sheet is, what working capital is, or what a cash flow projection is (and how to do one). Knowing this information is essential to their survival.
Then we see it with the companies my students work within our small enterprise management class. These are real businesses here in NWA and all over the country. Our students have seen and worked with over 1,000 companies during the past 15 years. So many of them are struggling financially, yet so few have any real grasp on their numbers. They don’t know what their breakeven is. They don’t know what they make or lose money on.
I can say the same thing about the professionals who own the architecture and engineering firms I have worked for as both an employee and management consultant for the past 40 years. Between 50% and 70% of them don’t understand these concepts either. Even those who may have ownership stakes in the firms worth seven figures or more often have no accounting or finance knowledge. It’s appalling.
So what can we do about that? I can only tell you what I do with my students, our clients, and what we do in our businesses to help educate people. Give them some training. Use simple examples they can relate to, such as a check register (cash flow), a vehicle they have financed (balance sheet of an asset less liability), and monthly budget they live on (income statement). And regularly share the numbers with all employees so they can see how it all relates.
This is critical stuff. Our nation needs our entrepreneurs and small-business owners to be successful. They create many jobs and generate a lot of wealth. We also need larger businesses staffed by people who understand the metrics of those businesses. But if we are going to have that, we need much more widespread knowledge of business language. And that’s accounting!
Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also executive-in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas. The opinions expressed are those of the author.