“Lost in the Translation” – Speaking the Financial Language
Have you ever been in a room where everyone is speaking French, Spanish or some other foreign language – except for you? It can be either no big deal or it can cause you a lot of anxiety depending on your fluency in that language and the stress of the specific situation you are in. What are they saying? Does anything impact me or my family?
Often after the acute experience, we decide that we should take some language lessons in advance of our next trip to that foreign country. Any knowledge of that language will result in less travel pressure and knowing even a little of a foreign language open us up to new learnings and possibilities.
The language of finance is no different.
As a business owner, have you ever:
- Been in a meeting with your banker or insurance broker where you honestly did not fully understand what was being discussed or the acronyms used? Did you possibly nod your head in agreement when you were not really sure – but didn’t want to say anything?
- Received a call from your banker telling you that you are offside on one of your financial covenants and you don’t recall ever even agreeing to a “covenant”?
- Met with your year end accountant to review your financial statements and the financial buzzwords were almost nonstop? Were you sitting there politely hoping for the pain to stop sooner rather than later?
These types of situations can either cause your eyes to roll up to the sky, cause great anxiety or frankly anything in between.
In my opinion, it is critical for us as financial and business advisors to make sure we understand how fluent our clients are in speaking the Language of Finance before embarking on any financial advisory adventures. I believe that to have an impact on that client, on his or her business and their families, the advisor has to know at what level the client lies in his or her ability to truly understand the language we, as advisors, are speaking. If this is not the case, there will likely always be something “Lost in Translation”.
Learning the Language of Finance is no different than learning Spanish or French – it is new, different and maybe somewhat intimidating. This language is full of acronyms such as EBITDA, ROI, ROA, ROE, WC, LTD, CPLTD, just to name a few. So, you need to not only learn what these all are, but what they mean and how they might impact you, your business and your family. Like learning any other new language, memorization will be of limited and short-term value. Long-term education is essential for retention of the language.
Why is it critical that business owners speak the Language of Finance? The first, and most obvious, answer would be that it is needed to converse effectively with lenders, shareholders, employees and even the government. You are at a distinct disadvantage otherwise. Yes, we often hire others to deal with many of these corporate financial issues, but at the end of the day as a business owner, it is ultimately and truthfully your responsibility if something goes wrong.
Let’s go even a bit deeper. Consider your knowledge of the Language of Finance relative to succession planning. For example, you have brought in your new internally grown management team or perhaps brought family members into the business – would you not require them to have strong or superior knowledge of the Language of Finance? From risk management and longevity perspectives, choosing people with this important skill would be essential to successfully running the business in your absence and thereby preserving the corporate legacy, at a minimum.
When we meet new clients, one of the key deliverables Is working towards the business owner becoming more fluent in this language. We assure him or her that we’re not trying to make them perfectly bilingual, but we will teach them to be relatively fluent in this language, because it is necessary. Like any learning, a new language is not a one Monday night class and off you go.
I believe that you must learn this language most effectively over time by:
- Acknowledging that there may be a weakness in your language proficiency,
- Working with someone to help you recognize what you don’t know in this area and working on those learnings,
- Identifying parts of the language you think you know but are not 100% accurate or sure,
- Having someone introduce you to, and being open to, brand new concepts and the language itself, and
- Opening up yourself to groups of people in similar positions as yourself through business networking and support groups such as TEC, EO, YPO, WPO or connecting with a business coach or mentor.
Of course, the benefits of your investment in the learning the Language of Finance are far reaching. They may include:
- A superior understanding of the financial end of your business and thereby the ability to make better business decisions based on that knowledge,
- Being an active participant in the financial meetings similar to the level of participation you may experience in an operation or other such meeting where you completely speak the language,
- Being able to confidently explain your business to any potential lender, investor or buyer from both an operational and a financial perspective, which would inevitably enhance the value of your business, and
- Being able to take this additional clarity, confidence and control relative to your business everywhere you go – to business meetings or even home to your family.
In conclusion, running a successful private business requires all operational levers and gears working together. It also needs injections of specialty knowledge that sometimes is not fully resident in the company or only “appears” to be. Scalability is a significant issue in growing businesses. Things worked much easier at lower levels of activity, but as the company grows, some of those knowledge bases become either limited or restricted. One of them is very often financial. So, ensuring the key people in the organization have a reasonably strong fluency in the Language of Finance will ensure that nothing gets “Lost in Translation”.