For you to be able to make decisions about what your business should do today, and in the future, it is helpful to understand the languages of business.
The Language of Accounting
Accounting tracks historical information in your business. It is the language used to keep track of revenue, expenses, capital and other items. This rules-based system abides by GAAP and is used by companies to communicate business results to a variety of interested parties such as Revenue Canada, investors and bankers.
GAAP is a set of rules, standards, and principles that public companies must follow when making financial statements. GAAP rules guide you on how business transactions should be presented, disclosed, measured, and recognized on reports. If you are a smaller company that does most of your business domestically, you can choose to follow either GAAP or another Canadian set of accounting standards called the Accounting Standards for Private Enterprise (ASPE).
The Language of Finance
Once you understand accounting language, you can take what you know and move ahead to the language of finance. Accounting is backward-looking while finance is forward-looking. The numbers prepared by your accountant can be used to create forward looking projections to help you plan the future. This language is used to see where your company value is being created and the rates of return on investment.
The Language of Economics
This is the 3rd language of business. It looks at the behaviour of the external economic forces that occur outside of your business. Think about systems of supply and demand, changes to customer preferences and the impacts of technology advancements as pieces of the economic language.
