Ways to improve your financial literacy…
As a small business owner, understanding your company’s financial position greatly improves your chance of long-term success. Knowing where you are financially allows you to plan for the future and avoid common financial mistakes.
Most small business owners struggle to truly understand their finances. In a recent study, many of small business owners surveyed said their lack of financial knowledge is one of the greatest barriers to success.
Here are some tips for taking control of business finances, improving financial literacy and taking your company to the next level:
Know the basics. Even if you have a professional such as a bookkeeper or CPA helping you with your finances, you still need to understand them. Know how to read and make use of the income statements and balance sheets, understand your inventories, and learn know to manage your cash flow.
Know the Costs. How much money does it take to run your business on a monthly basis? Determine the true costs of your products and services, including labor, transportation, rent, marketing, insurance, phone, Internet, utilities, taxes, and whatever else you require to function.
Uncover hidden costs. Need a permit or a license? It’ll cost you. The expense of these things can start to add up. Don’t’ forget to factor in the cost of legal services, your own salary, return on investor capital, the cost of borrowing money or the interest cost on debt you may have already accrued. Once you can put numbers to everything that takes money out of your business, you can plan how much you will need to grow going forward.
Know your business environment. Be educated on your marketplace, analyze your competitors and know how your company stacks up against them in terms of goods, services, and pricing. Find out their strengths and weaknesses and identify potential opportunities.
Know your worth. How do you price your products or services and how much does an hour of your time cost?
Find a professional you trust. Even if you can only afford a professional on a part-time basis, accountants and bookkeepers are invaluable partners who can help you understand where your business is and where it is headed. They will use the data from your financial management tools, analyze it, and work with you to provide an overview of your needs.
Keeping an eye on the big financial picture will help you manage things as they occur. Being proactive is always better than reactive.