It was an article that got me excited about finance, and then I started my journey to learn more about it. I spent more than 200 hours with senior chartered accountants to understand numbers, to demystify numbers for a layman. Throughout this blog I will be using my philosophy which is KISS – Keeping Information Simple and Specific. Albert Einstein very beautifully said – “If you can’t explain it simply, you don’t understand it well enough”.
There is a qualification criterion to read and understand financial statements. This is the yardstick that I use to find out if my clients qualified to read and understand financial statements. Let me use the same thing here. It is a trade secret which I do not let out but now will
If you think you can read and find meaning from the above picture and it makes sense, it simply means you are qualified to read and understand financial statements. Does that mean you should learn tennis. Well it is not that. If you can read numbers you are qualified to read Financial Statements
Business is Simple
Business is not complex but very simple. Just follow the simple rule – Earn more, spend less.
While doing business when we add the transactions that involve money coming in and Money that is supposed to come in, it is the total earnings, and when we add money going out and the money supposed to go out it is the expenses or spending.
When the income is more than spending the business will make profit. It is so simple to do business.
Why understand numbers?
Whenever I meet business owners and decision makers I try to explain to them the importance of understanding finance and numbers before making any decision. Almost every time their immediate reply would be – Why should I understand numbers? I have got a book-keeper. I have got an accountant. We have a CFO. We have a finance department.
Well friends Rich dad said, “If you want to be rich, you’ve got to understand numbers.” That is why a person’s financial statement becomes their report card once they leave school. These are the words of Robert Kiyosaki. My mentor who got me into finance said – “Sooner or later everyone realizes that their ability to lead successful business largely depends on their ability to read Balance Sheets”.
Jack Stack author of the great book ‘The Great Game of Business’ said –“If people know how to use a financial statement, that’s really the simplest way to run a business”. These are not simply quotes but essence of business as stated by experts.
If I can understand numbers, even you can!
When I make my clients understand the importance of knowing numbers before making business decisions, their immediate reaction would be – Micahel do you think I can really understand numbers? Do you think I can read a financial statement? I was not good at math when I was in school. I did not study any subject related to accounting, when I was in my college. Well friends let me tell you something. Even I do not have commerce or accounting background. I am a Civil Engineer. I did my masters in Entrepreneurship but finance was not my main elective. What I am trying to say is you do not have to be a mathematics genius. You do not need to have any kind of finance or accounting background to understand reading financial statements.