By Sean Hookins
A common gripe with accounting echoed by many start-up and small business owners we meet is the sheer amount of jargon used within the industry.
And tax it seems, is a language all of its own.
This perceived communication barrier can make the process of doing the accounts seem to some at best daunting and at worse downright painful. No wonder it’s often left until the last minute!
Let’s face it, when you’re running your own business you have other things to worry about, and chances are you’ve a whole glut of your own industry-specific lingo to master. Finding time therefore to understand the difference between ‘accruals’ and ‘prepayments’ can be challenging.
But is all this
jargon really necessary?
Well…. yes – at least to an extent .
An understanding of your company’s finances is crucial to long term success, and there are certain words and phrases which an understanding of will help you and your business in the long-run.
These needn’t be confusing either, provided you’re given clear explanations from the get go.
This is where your accountant has the opportunity (and in our books; responsibility) to step up and better equip you to understand and discuss your finances.
communication here is key.
A little terminology, accompanied by concise reasoning and interpretation can empower small business owners to really get to grips with their finances and take control.
Too many buzzwords however, can result not only in a breakdown of communication, but in resentment and the feeling of being belittled.
I have personally experienced the latter whilst dealing with lawyers in the purchase of my first home. They may have had the best intentions in the world, but their choice of language and excessive gibberish resulted in hours of googling just to discern any meaning from their emails, which ultimately led me to ask; ‘ why exactly am I paying you again?!’
The whole experience ultimately left a sour taste in my mouth, and the thought of having to go through the process again fills me with dread! But, when I do – I certainly won’t be using the same firm again.
Many small business owners have had similar experiences with accountants, which goes to show that in a services industry that is becoming increasingly automated, clear communication remains as relevant and fundamental as ever.
Overall, I’d emphasise the importance for accountants to be able to explain basic concepts and jargon clearly and without any ego – I often ask myself the question, ‘Would a premiership footballer understand this?'
This is especially important in accounting and tax, where there are often multiple ways of saying the same thing – just to add to the confusion!
Just to give you a few examples:
- The terms ‘Revenue’ and ‘Income’ can both be used interchangeably – but for the sake of simplicity just refer to ‘Sales’ – then everyone knows where you stand.
- ‘Trade Debtors’ and ‘Accounts Receivable’ both refer to unpaid sales invoices – so why not say just that?! Not to be confused with ‘Trade Creditors’ or ‘Accounts Payable’ – which refer to unpaid bills. As these are easily confused, it’s important that you make clear which one you’re talking about!
- The various financial statements which make up accounts also go by a multitude of names. Take the ‘Balance Sheet’ for example, which reports an entity’s assets (what it owns) and liabilities (what it owes). Whilst it’s important for a business owner to understand its purpose, it’s not necessarily important to know its excessively complex alternative name; the ‘Statement of Financial Position’ – another bit of pointless jargon that’s just not needed in everyday communication.
The language of accounting shouldn’t be dreaded by business owners and I’d encourage you to familiarise yourself with at least some the terminology used – but you don’t need to understand everything. If something your accountant has said isn’t clear, or doesn’t make sense – then ask – they should be all too happy to help – we certainly are!
Jargon can – when used sparingly and backed up with understandable explanation – help small business owners to better understand the worlds of tax and accounting; overcoming anxiety of the unknown whilst encouraging financial proficiency.
If the language of accounting seems all gobbledegook to you, then why not drop us an email to firstname.lastname@example.org and we’ll see if we can’t decipher your queries and translate them into plain English.