According to Warren Buffet, accounting is the language of business. Therefore, a strong knowledge and understanding of accounting is important in business.
Non accounting professionals need not acquire professional qualifications from bodies such as Association of Chartered Certified Accountants (ACCA).
However, they should seek to have a working understanding of accounting principles and practices.
The following are 8 reasons why understanding accounting is important for a career in business.
- Business is ultimately about profit and loss
- Communication with stakeholders
- Compliance with regulations
- Career diversification
- Cost management
- Prudent decision making
Let’s take a closer look at each of these.
Business is ultimately about profit and loss
No matter the type of business that you are involved in, business is ultimately about profit and loss. A continuous loss making business will be soon out of business.
Therefore, profit and loss management is critical to ensure that a business remains in business for the foreseeable future. An accountant would say a going concern.
Effective profit and loss management will highlight the areas of the business that a manager should focus on.
For example, if revenues are tracking behind, the business could consider launching a new product, tighten credit policies or improving on promotions as potential remedies.
Communication with stakeholders
The language of communication of a business with several stakeholders is usually done using the finances of the business. A CEO of a business will usually have report to a board of directors which is based on the profit and loss.
If the business needs a loan from a financial institution, the profit and loss, balance sheet and cash flow statements will be required by the bank. This will prove whether the company has the ability to repay the loan.
If the business will like to sell shares, potential investors will require a prospectus to make their buying decision. Thus, understanding accounting is pivotal when communicating with various stakeholders.
Compliance with regulations
Every country has its legal and regulatory framework which a business must adhere to. An understanding of accounting can assist especially within small businesses.
Small businesses tend to have limited manpower. Lack of compliance could mean fines and penalties in certain cases which only eat into the finances of the business.
In larger companies, compliance may be extended to internal audit processes. Businesses are usually required to maintain strong internal controls.
As an example, an engineer within a business will need to ensure compliance with purchasing and capital expenditure processes.
Many at times, persons outside accounting function do not comply not because they do not want to. However, they do not genuinely understanding why adherence is useful for the business which creates conflicts with the accounting function.
A working knowledge of accounting makes this process smoother.
An understanding of accounting could help in career diversification. Many CEOs and general managers that I know have strong financial backgrounds.
Therefore, an understanding of accounting can open up the doors to more senior roles within companies.
Management of cost is just as critical as driving revenue in a business.
Financial training can assist your career in understanding several different methods of costing thus ensuring that the EBITDA of the business (earnings before interest, tax, depreciation and amortisation) is favourable.
While driving revenue is important, managing costs is even just as critical as it all affects the bottom line.
Prudent decision making
Financial training can assist your career no matter what role in assisting you to become a better decision maker.
No matter what role you occupy, you will be required to make decisions. Accounting helps in providing an analytical framework in making decision.
If you are in marketing and you are responsible for pricing products, knowledge of break-even analysis could help you to properly price products.
If you are launching a new product, the knowledge of building financial models can assist in understanding minimum viable product related to a project.
These techniques could also be extended to decision making in other areas of your life. For example, should you invest in cryptocurrency?
Why purchasing land in point A may be favourable than point B. Accounting techniques could all be used in these cases to assist you in answering these questions.
Businesses are usually managed on a day to day basis according to budgets to which all employees must adhere.
A human resource assistant may be responsible for managing the training budget of a company. Knowledge of accounting will be essential for proper function execution.
Likewise, a wedding planner at a hotel will be responsible for managing the budget of the wedding department. Thus budget management skills extend beyond roles in accounting.
Financial planning skills are also useful in our day to day lives. We are all responsible for ensuring the money that we earn achieves the maximum return.
Robert Kiyosaki coined the famous quote, it’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
This quote reminds us all that prudent financial management is the factor that ultimately determines the creation of wealth.
In a business, consistent monitoring is necessary to ensure that we are focused on the right objective at the right stage of the business.
Most businesses tend to have key performance indicators that relates to the progress of the business which usually tied to growth in financial performance of the business.
For example, a professional blogger may maintain key performance indicators. These may include monthly page views and number of email subscribers. Certain key indicators may take precedent over the next depending on the stage of the business.
Small business owners especially during the start-up phase of a business, may not have money to hire a full time accountant.
Monitoring debtors, creditors and taxes will be all areas that will require attention. Failure to review these can be detrimental to the continuity of the business.
Accounting is a fundamental concept to have an understanding of no matter your career choice.
Hope this blog post assist someone especially non-accounting students in college to consider including accounting courses in your programme. This choice will pay significant dividends in the future.
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