“We have an ethical duty to educate our clients to a higher level of financial literacy.”
One of the saddest experiences we accountants can have is watching a client’s business fail because they couldn’t grasp basic financial concepts. We can advise and encourage and wave red flags over urgent realities, but we can’t run clients’ businesses for them. If they can’t master the difference between profit, turnover and cash – and a frighteningly large number of people never do – their enterprises will struggle to survive.
So what can we do? I believe we have an ethical duty to educate our clients to a higher level of financial literacy – and that if we succeed, we will enjoy better job satisfaction.
Of course most of us already try to educate clients, but our efforts are hampered by the fact that the more experienced we are, the more we have forgotten how much we actually know. After a few hundred hours of practice, our knowledge sinks so deep into implicit memory that it’s difficult to remember not having it.
To us, the difference between profit and cash is so obvious that it’s not worth mentioning – so we don’t. And if we do, we often struggle to translate our knowledge back into language that lay people can understand, and so our lessons go straight over their heads.
What we’ve seen help, and spent two decades developing, is a framework for translating financial concepts into ordinary language. We call it the BaSIS Framework, for Balance Sheet/Income Statement Framework. The key is not to dumb down but rather to provide a decryption key for the complex code that is accounting. We don’t need it for ourselves – to experienced eyes, a balance sheet reveals its secrets as easily as a page of this magazine – but to the uninitiated the code is impenetrable.
Every now and then someone objects that if we teach our clients too much, they’ll try to do it themselves and we’ll be out of a job. But this fear-based thinking holds us back. Think about it – would understanding how an engine works make you want to service your own car? Of course not, or at any rate, never more than once.
In fact, what knowledge gives us is the ability to maintain systems better. The more I know about how cars work, the better I can drive to maintain engine performance and fuel economy. I might even invest more in my car.
In the same way, clients who understand basic accounting principles can maintain their finances and their businesses better. And when we see them, we get to spend less time fixing ignorant errors and more time helping to optimise the business. How would you rather spend your time? ❐
Author: Peter Frampton (CA)Aus is co-founder and CEO of Color Accounting International
