Provided by the International Finance Corporation
Many people struggle with numbers beyond the everyday basics. Anything that appears mathematical can easily make ordinary people including many business owners feel unsure or confused.
The number itself isn’t the problem. What it’s called is usually the problem.
- Here is a list of business related terms that are usually represented by numbers that you might have heard or seen that often cause confusion. We have included an explanation in everyday speech to help you. For more detailed example calculations, click here.
- There are also some key ratios that investors and lenders are interested in, some of which can be quite complex requiring more detailed underlying calculations which are not easy for non-finance professionals to grasp quickly. This is probably why business owners struggle with some or all of these terms and their calculation.
Do a monthly or quarterly check
Use the terms in the glossary to discuss your accounts with your accountant. Some of the terms can be read directly from the accounts, in particular your financial statements but others need to be calculated. Make sure you keep track of the results so that you can see your business’ progression. At the very least it will make you feel more in control of things and it could even alert you to an underlying problem that must be addressed.
The simplest way to check if your numbers are right is to do a monthly or quarterly check. Profitability is often something that business owners worry about. Waiting a whole year for the annual accounts to learn if you are making or losing money can be very frustrating. For instance, if you want to know if the mark-up you apply to the goods you sell is adequate to cover all your costs, then you should carry out some analysis each month or quarter. Get your financial controls in place with some tips here.
If you feel you need to know more about these business terms and complex ratios for your business, approach a finance expert either at your bank or your accounting or auditing firm for more information. The explanations here should give you a head start, but keep in mind, if the ‘professional’ you talk to cannot explain these numbers to you using your own business circumstances in a way that you understand, the chances are he or she does not understand it themselves. Ask to see someone else. These numbers could be critical to the success of your business and getting bad advice could be catastrophic!
This table here helps you identify the various finance experts you may need at some stage. Most countries have a professional body that certifies accountants. Contact them to find out what qualifications and certifications are available in your country. Bear in mind though that there is no universally agreed definition for these skills! Many businesses, particularly small and growing ones, combine some of these roles into one. It is often a good idea to hire a young accountant who is just starting out in their career, to do much of the bookkeeping and even cashier work. They will probably see it as a chance to learn and progress their career. Of course, they are unlikely to stay for long if their role doesn’t progress to higher level tasks. However, growing businesses tend to create plenty of work for finance staff, and you could find that the accountant that started doing cash payments eventually becomes Finance Director after five to ten years. Then you have the bonus of having a Finance Director who knows the business form the bottom up and the inside out.
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