Why can’t I understand the financial numbers?

Money and finance topics have often been presented in a boring and uninteresting way yet they affect almost every one in society. So if this topic is so important why have more people not found the answer to understanding how it all works? One of the major reasons is that money and the stewardship of finance has been the domain of a profession which has a way of looking at things which is not easily understood and those who work in it have had no compelling incentive to communicate with those outside it. Most people don’t go to an accountant because they want to. They go because they HAVE TOO! When it comes to choosing members for a management team most managers choose to have an accountant because they want someone to ‘look after the finances’ and the accountant is often more focused on making sure things are controlled rather than communicating with the rest of management how the numbers work with the strategic running of the business. In the business community financial communication is often not clearly understood outside the finance function and I have found that there is a high level of frustration in understanding financial statements by non accounting executives. Financial numbers are often learned ‘by rote’ rather than having a feeling of how they ‘go together.’ The effect of this is that people can answer questions from their superiors but have very little ability to make use of the answers in the daily hustle and bustle of their working life. Many executives have knowledge of the profit and loss account; fewer have knowledge of the cash flow statement and balance sheet. But how do they all work together? When I ask people this question I have on occasions been met with the question; Do they?? The prime reason for this is that in traditional reporting the statements are shown separately and no one has shown people how they work together. To make sense of the financial statements it is important to understand how they work with one another and therefore it is easiest to view them all together on one page. This is why I invented The Financial Fence® as a way for people to see visually how simple it is to view everything in the right context. So why use a fence?? People see fences every day and I felt that people needed an analogy which they would see around them on a daily basis. Combined with this a fence can also show a picture of all the financial statements working together because:-

1. Fences are made of two parts:
A. Posts that anchor the fence into the ground at a point AND
B. Rails that carry the fence over a distance.

2. Fences incorporate Milestones (Posts) and Activity (Rails) in the same analogy.

3. Financial statements also have these two parts :
A. “Milestones” - Balance Sheet.
B. “Activity” – Profit & Loss Account & Cash Flow Statement.

So by using this simple analogy people can see the BIG picture of a business which is often lost in the accounting detail. Understanding the BIG picture helps executives keep the right perspective in reviewing the numbers of an organisation which means they can make better faster decisions.

http://www.financialperception.com