Business leaders who understand key accounting principles understand how money through their organizations, which, in turn, helps them make smarter decisions.
Ever walked out of a meeting, or read a memo from the executive suite, and said to yourself “Why did they decide that?”
Ever had an idea that you thought was great unceremoniously shot down with some vague comment about “the numbers won’t work.”
Accounting and financial considerations are vital in nearly every decision made by a company, nonprofit or government agency. That includes the decisions made by your organization.
If you want to understand more about why certain decisions are made or, even better, make smarter, more persuasive decisions yourself, consider increasing your accounting knowledge.
An understanding of accounting principles – perhaps even a Master’s degree or a CPA designation – will help you upgrade your career. But even before you complete your first class, you’ll get an upgrade to your business savvy.
Here are five situations where you’ll be able to wow your peers and your managers — or at least understand how they really think — once you start thinking like an accountant.
Sales are great, but in a team meeting your boss has asked everyone for ideas to reduce operating costs. You want to help, but you’re wondering why cost reductions are a focus if sales are up.
What accounting will teach you: Sales increases don’t always translate to immediate cash in the bank. Depending on when and how revenues are recognized, and what your company must do to provide products or services, higher sales can sometimes even mean a cash crunch in the short term.
Your instant upgrade: Knowing why your company needs to cut back on spending, even as sales rise, helps you make smarter recommendations about costs that could be reduced.
Your company’s making a widget that costs just $2 to manufacture, is flying off the shelves for $20 a pop. But profits aren’t exactly sky high – why?
What accounting will teach you: The cost of making a product is just one part of the cost of doing business. The “cost of goods sold” includes everything from salaries of manufacturing employees to raw materials. But the company has other expenses, too, including leases on office space, customer service costs and some employee salaries (maybe even yours!). Your company doesn’t start recording a profit until all those expenses are paid.
Your instant upgrade: Understanding that the costs of manufacturing a product are just part of your company’s expenses.
Your company has lots of cash on its balance sheet, but the stock price has dropped.
What accounting will teach you: Investors think more about the future than the current state of your company when they decide how much they’re willing to pay for your company stock. Your company’s sitting on a lot of cash? That might mean there’s no profitable new ventures to invest it in, which means growth prospects are poor. The result: Investors downgrade your stock and share prices sink.
Your instant upgrade: Understanding that stock prices depend mostly on how profitable a company will be in the future, and less on how it’s done in the past.
Despite its large cash reserves, the CFO has just announced the firm is going to borrow money to pay higher dividends. You wonder if this means something’s wrong with the business.
What accounting will teach you: Your CFO is pretty smart. Borrowing is cheap right now, thanks to low interest rates, and paying higher dividends to shareholders will boost the stock price. Got co-workers who are asking the same thing? With your MAC classes, you’ll be able to explain the decision to them.
Your instant upgrade: Knowing what’s behind your company’s financial decisions will help you better understand why and how top management make certain decisions, and what that could mean for your future with the firm.
Your employer has recently added “non-qualified stock options” to the compensation plan for you and many of your peers. You know that means you can buy company stock in the future, but what are they truly worth?
What accounting will teach you: The concept of stock options isn’t too hard, but to get the most value from them takes smarts. The value of options depends on the stock price when you exercise it — usually that’s NOT when the options are granted to you. Typically there are limits on when you can exercise those options — when they “vest.” Also, once you exercise an option and buy stock, there are tax implications depending on what you do with those shares and when you do it.
Your instant upgrade: Being able to analyze complex compensation choices, such as stock options. That’s useful if you’re receiving those options, and useful if, one day, you’re the one deciding whether to grant them to employees.
Want more tips and insight on how accounting knowledge will improve your business savvy and fiscal intelligence? Download this free learning guide, “How Thinking Like an Accountant Can Make You Smarter (and more valuable!)”.
Or, if you’re interested on where your current knowledge and skills stand, take our short, but insightful, Business IQ Test.
Allison Elia, director of operations for a non-profit organization in Columbus, Ohio, describes how she’s putting her new accounting skills to work, helping her organization become more efficient as they serve the needs of her community’s youth.
What’s your next career move? Consider the #1-ranked online Master of Accounting degree from the University of North Carolina. With flexible schedules, evening courses delivered by world-class faculty, and a career services team dedicated to the needs of working professionals, the program can give your career the boost it needs.