How to Talk About Your Business’s Financial Statements
On many occasions, a business manager has to discuss her business’s financial statements with others. Many business managers look at preparing the annual financial report of the business like they look at its annual income tax return — it’s a task best left to the accountant. This is a mistake. You should take an active part in preparing and discussing the annual financial report with others.
Business managers must be prepared to discuss their business’s annual financial report with others on occasions such as the following:
Applying for a loan: The loan officer may ask specific questions about your accounting methods and items in your financial statements.
Talking with individuals or other businesses that may be interested in buying your business: They may have questions about the recorded values of your assets and liabilities.
Dealing with the press: Large corporations are used to talking with the media, but even smaller businesses are profiled in local news stories.
Dealing with unions or other employee groups in setting wages and benefit packages: They may think that your profits are very high so you can afford to increase wages and benefits.
Explaining the profit-sharing plan to your employees: They may take a close interest in how profit is determined.
Putting a value on an ownership interest for divorce or estate tax purposes: These values are based on the financial statements of the business (and other factors).
Reporting financial statement data to national trade associations: Trade associations collect financial information from their members. You should make sure that you’re reporting the financial information consistently with the definitions used in the industry.
Presenting the annual financial report before the annual meeting of owners: The shareowners may ask penetrating questions and expect you to be very familiar with the financial statements.
You should carefully think of what to say in the letter to stockholders that accompanies the financial statements. Be sure to come across as very knowledgeable and be very persuasive in what you say. You should help craft the footnotes to the financial statements. The annual report is a good opportunity to tell a compelling story about the business.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
