Everyone has been there; no one escapes that awkward feeling when you are in a group setting, and you have no idea what one member of the group is saying. Internally, you ask yourself, “Am I the only one?”
Feeling a bit sheepish, you wonder if you should speak up, confess your lack of understanding, and have them clarify, or should you take the safe route, remain quiet, and pretend to understand. I would suspect that it is the latter that is most common.
In a Wasp Barcode study, of 331 small business leaders, 21% admit they are not knowledgeable nor have even a general knowledge of accounting and finance. This percentage has dropped significantly in the past few years, which is a trend in the right direction.
However, business owners would be well advised to clarify any financial information they do not fully understand with their accountant. When you receive your report, don’t just file it away. Study it and make sure that you understand the financial data and how it can deliver a clear picture of your business’s path forward.
Suppose the report feels like a sea of black and white, where the numbers are endless, and it does not seem to make sense; this is the time to ask your accountant for greater clarification. Those three words, “I don’t understand,” can clarify to your accountant the areas that need a more detailed explanation and some follow-up instruction. Uncertainty is not the time to be passive; the financial health of your company depends on it.
How Accountants Meet Client Demands
Accountants are Reporting that an Increasing Number of Business Owners are Requesting Advisory Services
The Practice of Now 2020 Report by Sage found that in the United States, 79% of accountants are stating that client expectations are increasing to include business and financial consultancy. More and more small business owners recognize the added value that accountants can offer and how they can play a more significant role in providing strategic financial advice.
This is excellent news for the accounting industry!
Accountants are responding to the demand. In the report, Where Opportunity Meets Value: Business Model Trends for Accounting Advisory Services, 650 accountants and business professionals participated. They found that “more than 60% of accountants surveyed offer strategic advisory services, 26% offer outsourced/virtual CFO services, and nearly 25% offer cash flow analysis. While this survey took place before the pandemic, we’ve also seen that the need for strategic advice in recent months has only grown.”
Business owners are requesting more extraordinary advisory services from their accountants. Accountants are increasing their role in providing these services to meet the demand.
Now what? What are the steps to help you understand specific terms during your meeting with your accountant? Keep reading.
1. Increase your Knowledge, Leverage your Time with your Accountant
Reviewing accounting terms, definitions, usage, and applicable formulas would be a great starting point for business owners. I know that kind of feels like homework when you were in school, but this small investment in your learning will come back to you tenfold.
These terms will not only help when you are having a business meeting with your accountant, but they will also help you determine profit and make critical financial decisions.
Here are a few websites to see their recommended list of accounting terms:
Some basic terms you should understand:
Start with these 25 terms they will help you increase your accounting knowledge and advance your conversation with your accountant and make the time spent together more effective.
- Accounting Period
- Accounts Payable (A/P)
- Accounts Receivable (A/R)
- Accrual Accounting
- Bank Reconciliation
- Cash Accounting
- Certified Public Accountant (CPA)
- Cost of Goods Sold (COGS)
- Financial Statements
- Generally Accepted Accounting Principles (GAAP)
- General Ledger
- Gross Profit
- Journal Entries
- Net Profit / Loss
While you’ll likely continue to run into various unfamiliar words, phrases, and acronyms, getting acquainted with these top 25 accounting terms can go a long way towards making you much more comfortable with the accounting process.
2. Ask Questions
Make sure your accountant understands that you want to learn and that you are teachable. Arrive at your meetings armed with the questions you have. By asking the right questions, you will discover the best ways to make intelligent financial decisions for yourself and your business.
“Small businesses need to find a savvy accountant who can educate them and provide creative direction to meet their dynamic and sometimes complex accounting needs. Especially in today’s stressful economy.”
-Justin Hatch CEO Reach Reporting.
Here are some initial questions you might ask:
- What records should I be keeping?
- How should I prepare for tax season?
- What business expenses can I deduct?
- How can I better manage my cash flow?
- What is my break-even point?
- How can you help me grow my business?
- What changes can I make?
- What can I do to increase the value of my company?
- What initiatives would have the largest effect on my companies value?
- What can you see that is holding my company back?
- Is my company on solid financial ground?
- What are the companies vulnerabilities?
- How can I improve my ability to access capital?
- How can I retain key management without giving up equity in the business?
There is no stupid question you can ask, and if you have a great accountant in your corner, they will be open to your increased desire to understand. Communication is a crucial component to the success of your company.
3. Share your Company Goals
Imagine two friends are on a walk together; one thinks the goal is to walk 2 miles as fast a possible, and the other thinks the plan is enjoying the journey talking with their friend. Both goals are worthwhile but imagine how frustrated each friend would get with the other. When the goal is laid out clearly, and both parties understand, the walk will be much more enjoyable and successful!
Let your accountant know what your financial goals are and where you would like to take your company. Ask for their input, set milestone goals, and check back on those goals regularly. When you are both on the same page with the financial goal of your company, the sky is the limit!
Your accountant can be a vital help in setting goals; use their knowledge! Setting lofty yet achievable goals is a crucial component to the success of your company. If you find your accountant unprepared to be an advisor for your business, find an accountant who can help you drive your business forward.
At times, those three words, “I don’t understand,” may be difficult to express. No one wants to look or feel like the village idiot.
However, when it comes to your business and having the necessary tools to reach your goals and grow the company, an accountant can be your best friend. Take advantage of their expertise and listen when they explain what changes can help improve your business. It all begins with the words, “I don’t understand.”