I am not a numbers guy. And alas, I can’t say that Financial Intelligence for Entrepreneurs by Karen Burman and Joe Knight made me into a financially intelligent entrepreneur. But it did highlight how much I don’t know and that’s a kind of intelligence.
Financial Intelligence is a book aimed at giving entrepreneurs enough of an understanding of their financials to have a productive conversation with their bookkeeper or accountant. And, to notice when one of those people is being artsy with the numbers. The authors spend a good portion of each chapter pointing out where financial professionals have the opportunity to shift the shareholder’s perspective on the well-being of the company. There’s an art to it. Creativity.
Part of the reason companies can skew their financial statements is because privately held companies can track their finances pretty much however they want, and public companies only have to abide by guidelines set out in GAAP (Generally Accepted Accounting Principles). Part of an accountant’s job is to accurately portray a company’s financial situation, and since business situations can vary widely, GAAP leave a lot of space for interpretive techniques–for art–when calculating the numbers. For example, by depreciating an asset more slowly (that is, writing off a smaller portion of the purchase price each year, over a longer period of time), a financial professional can present an income statement showing unrealistically high profits.
The book covers all the broad strokes: income statements, balance sheets and how to manage them, the importance and peculiarities of cash, ratios and how to use them, return on investment and spreading financial intelligence throughout the business. Pretty much the sorts of things you’d expect to find in a book like this.
Since finishing the book, I’ve begun hiring someone to understand these things for me. Although I don’t think Financial Intelligence said anything new, or even with a particularly unique perspective, it did help me realize it’s not realistic for me to have serious working knowledge of all the finances. I need conversational knowledge and the guts to get someone else to do it.
Oh yeah, it also made me better at Sim City. 190,000 sims, people. that’s the power of Financial Intelligence!