‘Bookkeeping was a mystery … this gap in my education bedevilled my understanding of things financial for years.’
IN GRADE 9, WE HAD TO CHOOSE BETWEEN three streams. Academic, which meant Latin; commercial, which meant bookkeeping; or practical, meaning metal and woodwork. The woodwork teacher was my rugby coach, so my choice was easy.
Woodwork for me – but my old man would have none of it. I was left on the horns of a dilemma. Bookkeeping was a mystery. What was it? I had no clue that in business a record of the money flow was kept, and that the mechanics of this was bookkeeping. So how could I do this? Latin was almost too ghastly to contemplate, but at least I knew it was a language, and maybe if I went overseas I would be able to talk to someone. So I chose the one I understood best – the academic route – and have regretted it ever since.
This gap in my education bedevilled my understanding of things financial for years. It was only after I attended a “finances for non-financial managers” course that quite suddenly I understood what a balance sheet, income statement and cash flow were about, and how they painted a picture of the business. It was explained quite brilliantly, and I want to share it with you.
Our lecturer had puzzled us by asking that we bring a sequence of photographs of ourselves growing up. We laid them out from youngest to oldest. He pointed out that what we now had in front of us were the equivalent of the “balance sheets” of our growing up. Each was a snapshot of our shape and form at a particular point in time. We then had to write about key events that had impacted on our lives between photographs.
Once completed, he now pointed out that we had in front of us the “income statements” covering the period between each photograph. Here was the commentary of events that took place between “balance sheets”. It provided the basis for understanding why we looked as we did in each photograph. Finally, we had to write briefly about the life skills we had developed in-between photos. First it was learning to walk and talk; then to read and write; still later to learn about public speaking, and so on. This was the cash flow, the equivalent of the hard cash building up in the bank.
These three simple analogies have stayed with me. I still don’t really understand or care much about the mechanics of bookkeeping, but I do know the purpose of a balance sheet, income statement and cash flow. I know enough to question them, and to understand whether the business is thriving, stagnating or dying. Do you? Contact Peter Hughes on (013) 745 7303 or e-mail [email protected]. |fw