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Why do you need to know about finance

Bridget Holmstrom - Sunday, March 15, 2015

Why is finance important

I have often heard small business owners say that they don't understand finance or that they leave it all to their accountant.  Unfortunately for the small business owner the success or failure of their business is measured in terms of numbers because this numbers are the  language of business.  Waiting for their accountant to explain what is happening is of little value if the small business owner speaks to their accountant once a year and then only several months after the year has finished.  Even when the accountant does the VAT return every three months, this still leaves far too much time when the business can go wrong.  There are many outstanding accountants out there who can really help a small business particularly with tax issues, cash flow advice and so on.  However the specialist in understanding what your business is - well that is you.  That means if you fail, or refuse, to look at your business results on a regular basis then any decision that you make is based on gut instinct and assumption rather than on well researched evidence.

Gut instinct as we all know - or we should know - is an extremely fallible resource that leads us all astray.  Assumptions are those things that we know to be true without any evidence whatsoever to support that belief.

Management information based upon accounts that are produced accurately and on a timely basis give the business owner the kind of information that can be used to identify trends in sales preferences, the value of different marketing projects and when and to whom cash is going out of the business.  Used properly by the knowledgeable business owner and management information will be an invaluable resource. 

Understanding accounts is not difficult, rather it is like any new skill, difficult at first and then, after a few weeks or months it becomes hard to understand how we could have ever thought to be hard.

If you want an introduction to finance the there is one at the Admin Centre in Scunthorpe on Thursday 23rd April at 10am.  This will be a brief session where you will learn the key concepts and use practical examples to understand the importance of the profit and loss and the balance sheet.

Just in case you wondered - understanding finance does not require an in depth knowledge of maths is not necessary.  In the main you need to know and understand percentages but other than you should be able to identify which number is larger and which is smaller, is that right and does it matter.

For more information contact Bridget or 07795 463202