Written by Danette Fenton-Menzies
Why You May Find Reading Financial Reports Hard
I preferred English to Maths at school, so when I started doing accounting at university I really struggled. In fact, can I let you in on a little secret? I failed Accounting 1 at uni. Now I teach accounting (among other things) to accountants and non-accountants! If you are like me and prefer language to numbers, you may find reading your financial reports hard at present. Fortunately, there is a way to understand the ‘story’ those reports tell you.
We tend to avoid what we don’t understand. We may even come up with a good story to support our actions. Mine was: ‘I suck at maths. I am no good with numbers.’ What’s your story?
There are many reasons why you may find reading financial reports challenging. But like any skill, if you stick with it you can become more confident at reading financial reports and using them to make good decisions.
So why do many people find accounting and numbers so hard? Here are some of the reasons why you may not have yet mastered these reports.
Lost in Translation
Twenty years ago, my husband and I travelled to France. At one place we were staying, as I opened the door to Reception I noticed a sign on the door: ‘Attention à la marche.’ Suddenly I was falling forward – but caught myself before I fell flat on my face. The sign meant ‘Watch your step’…. It would have helped if I’d understood the language.
Have you ever travelled to a country where you didn’t speak the language you had no way to access a translator app? It’s scary and confusing to begin with.
Like all professions, accounting has its own language and it isn’t necessarily intuitive. Until you can translate that language into something you understand, you will probably feel like I did when I was learning accounting (or falling through the doorway). I thought I was stupid and no good at numbers, when really what I needed was someone to translate ‘accounting speak’ into plain English. If you are in a role that requires you to read financial reports to make decisions, then investing the time to learn the language will help make you more well-rounded in terms of your skills – and it will definitely help you feel more confident in your decision-making around numbers.
Extra Brain Effort
When you’re learning a new language, such as when someone starts talking to you about accruals, budgets and variances, you may find your eyes starting to glaze over and your mind wanders.
Our brain is an energy hungry beast. It is 2% of our body’s mass, yet uses 20% of our energy (measured through blood flow), so it looks to conserve energy where possible.
When our brain encounters a concept or idea it perceives as ‘boring’ or ‘too hard’, it is less inclined to want to understand that concept because it will drain more energy.
Unless we have a really good reason to concentrate on that concept, our brain will look for something more interesting or new to focus on.
If you want to get promoted or change organisations, learning to read your numbers will decrease the likelihood of you making poor decisions, especially around resources including $.
We have a saying in our company: ‘Change = Uncomfortable = Growth.’ It is important to remember than any new skill is uncomfortable until we practice it enough that it becomes part of our new normal.
We Use More Than One Word to Mean the Same Thing
When I was learning Accounting at university, there were times when I finally felt like I understood a concept, only to have the lecturer change words on me. Eventually I found out that accountants often use more than one word to mean the same thing.
For example, the concept of ‘debtors’ which is a list of all the people we have sold goods or services to on credit (instead of them paying upfront for the goods or services), can also be known as ‘receivables’ or ‘accounts receivable’.
So perhaps you started to feel OK about the numbers and then someone changed the words…. no wonder you are confused.
Not All Accounting Reports are the Same
Have you ever read a financial report that includes ‘minus’ signs or brackets? Then you move to another organisation and their reports look different or they use different symbols to the last organisation?
Unfortunately, not all accounting systems are configured the same way. This means that a report from one system may look different to the same report from a different system. This is especially so in terms of using symbols such as ‘-‘ or ‘( )’. Minus signs or brackets can reflect good or bad results.
Once you learn to understand how financial reports are organised, you will find it easier to look at differently-configured reports and understand what they are telling you.
Some People Like to Complicate Things
Some professionals mistakenly believe that using complicated terms is more likely to impress their clients. If you’ve ever been on the receiving end of this approach, you may also have walked away more confused.
Unfortunately, this approach generally triggers the same response we spoke about in the ‘Extra Brain Effort’ section above.
How many great communicators do you know?
One of the secrets of being a great communicator is the ability to make complex ideas appear simple. Like any profession, not all accountants are great communicators.
This means you may ask for a concept to be explained and the words that are used in the explanation are just more ‘accounting speak.’ It’s important to learn to translate accounting speak yourself, so that you don’t need to rely on someone else explaining the concepts to you.
Hands up if you have ever been too embarrassed to admit you didn’t understand something?
We have all done this.
I regularly have senior people, including board members, sheepishly admit that they don’t understood terms in their financial reports.
Once we’ve have held a position for a while, it is embarrassing to admit we don’t understand the financial reports we’ve been receiving regularly. We often pretend to understand in the hope that eventually we will ‘get’ the numbers.
The only real way to overcome this is to learn those financial skills.
Simple Ways to Grow Your Financial Skills
There are some simple ways to boost your knowledge of financial reports.
Start by deciding which of the above points resonate most for you. This will give you some idea on which area/s you need to work on.
One of the things I have noticed when teaching finance to non-finance people, is that once they understand that there are only two formulas they need to understand to ‘get’ the financial reports, their brains become less resistant to learning. Even when the words change, once they have mastered the formulas, it all becomes much easier.
When I finally understood accounting, a friend pointed out to me that I now had mastered a technical skill. I was already good at the ‘soft’ skills. She pointed out that many accountants didn’t value those ‘soft’ skills at the time (this was many years ago and not necessarily true today). This made me more well-rounded than the accountants who merely focused on their technical skills – and this can be the same for you.
One thing I really enjoy when teaching finance to non-finance people is that, if they preferred English to Maths at school, they love the realisation that there is a ‘story’ to be read in financials. Once you master the two formulas, it also makes it easier to spend time reading that story, because it’s there to us to help us make better decisions.
While change is uncomfortable, it does represent our growth. If you are looking to build your finance skills and make better decisions, investing your time and energy in learning the stories the numbers tell will be time and energy well invested.
If this is a topic that you resonate with, Danette is running a ML Live course on The Story The Numbers Tell next month. Feel free to check it out, or alternatively, reach out to us at firstname.lastname@example.org.