At its core, the function of leadership is to make decisions in an environment of uncertainty. While leaders are unable to predict the future, they must make decisions about what an organization should do tomorrow, next month, and in the next five years.
To support decision-making in a VUCA (volatile, uncertain, complex, and ambiguous) environment, the languages of accounting and finance are invaluable.
Often called “the language of business,” finance and accounting information is the foundation for all business decisions. While it might not seem to be important in the early stages of your career, the importance of finance and accounting becomes amplified as you ascend the corporate ladder. As a senior leader, you must provide financial justification for the decisions you make, and you must make those decisions based on numbers that come from other people. If you don’t know what the numbers mean, and you don’t know the right questions to ask, your effectiveness as a leader is minimized.
Finance and accounting aren’t sexy topics. But as the language of business, you have to learn to speak it.
The accounting department is responsible for recording and reporting the cash flow transactions of an organization. Key accounting responsibilities include accounts payable, accounts receivable, payroll, financial reporting, and maintaining financial controls. The functions performed by accounting departments serve as the foundation for all financial business communication within any organization. To begin to learn the language of business, it’s important to start with a solid understanding of the accounting system, how it works, and how financial statements all fit together. Accounting can be considered a universal language – the numbers on a company's balance sheet mean the same thing across borders.
Like any language, accounting has its own set of terminology. Those in key financial positions within a business must learn accounting language and, specifically, learn the meaning behind unique terms to properly and effectively use them on a daily basis. Equity, book value, gross margin, COGS, cash flow, diversification, EBIT, liquidity, present value, and a general ledger are all common accounting terms, but not everyone knows what these terms mean.
Reports generated by the accounting department provide important financial information to assist executives in their decision-making. When mergers or business deals take place, the parties involved can easily understand the health of any organization in any industry by looking at these reports. Within any business, it's vital to understand the language of accounting.
Closely associated with accounting is the language of finance. While accounting is backward-looking, finance is forward-looking and therefore critical to strategic decision-making. Finance departments advise on the use of - and mobilization of - financial resources to meet the organization’s growth objectives and to maximize shareholder return.
The finance department is also responsible for assessing value, monitoring rates of return, and the management of the organization’s cashflow to ensure there are enough funds available to meet day-to-day payment obligations. This area also encompasses the credit and collections policies for the organization’s customers to ensure the organization is paid on time. Finance departments also calculate the ongoing cash needs of the organization in the present and forecast what those needs should be in the future. The finance department is an essential resource for any leader who must make key strategic decisions.
Use finance and accounting to propel your career
The ability to speak the language of business – of finance and accounting – is a main factor toward achieving success in the business world. Those who know the language of finance and accounting are afforded a big-picture understanding of business. As previously mentioned, this big-picture understanding is universal: any organization, in any industry, in any country in the world, can be described and analyzed by an income statement and a balance sheet.
A leader who speaks the language of finance and accounting is more marketable and more mobile. As with any other language, fluency in finance is a valued skill and a way to break down walls of miscommunication in your own organization.
Learn the language of business
As with any foreign language, it takes time to become comfortable with the basics and integrate the terminology into your own understanding and usage. The Ivey Academy’s Finance for Non-Financial Professionals program will help to improve your financial literacy through the use of case studies and exercises that let you practice using this foreign language. You become the decision maker, and you’ll learn how to connect financial implications to strategy in a hands-on way. By working with Ivey faculty, you’ll better understand your own organization’s financial statements and determine the key questions you should ask. Upon your return to the office, you’ll have the confidence to make sound financial decisions, discuss statements with your finance and accounting colleagues, and – most importantly – ask the right questions of the right people.
About The Ivey Academy at Ivey Business School
The Ivey Academy at Ivey Business School is the home for executive Learning and Development (L&D) in Canada. It is Canada’s only full-service L&D house, blending Financial Times top-ranked university-based executive education with talent assessment, instructional design and strategy, and behaviour change sustainment.
Rooted in Ivey Business School’s real-world leadership approach, The Ivey Academy is a place where professionals come to get better, to break old habits and establish new ones, to practice, to change, to obtain coaching and support, and to join a powerful peer network. Follow The Ivey Academy on LinkedIn, Twitter, Facebook, and Instagram.