Small Business Financial Literacy – What You Need to Know
Every day I read an article, or come across a post about the importance of financial literacy as an individual. But what about as a business owner? Can the same tips apply to business owners? I would like to think so. It just requires different thinking.
Some key things to focus on when talking about your personal finances are budgeting, cash flow management and tracking your expenses. Well in your business you should focus on these same three areas. You have to understand how each of these things can and will affect the growth of your business.
When you see the term “Financial Literacy” you may think that it’s a bunch of complicated, boring and meaningless information. But in simple terms it’s all about knowing and understanding where your money comes from and how you are spending it. Knowing if it is working for you or against you. As a business owner, this knowledge, if used properly, can help you take your business to the next level. It will help you make better business decisions which will in turn allow you to thrive financially in your life and in business.
Creating a budget is essential to any business. Simply put it is the planning of when and where you expect your income to come from and how you are going to spend it. It is the foundation for managing your cash flow. Without a budget in place you are essentially operating your business in the dark. Spending money on anything you think will help your business without knowing if it will. Without a proper budget you have no idea if the income you are making can really cover your costs for the month.
Cash Flow Management
Managing your cash flow by forecasting. Forecasting is the process of taking the information you know about the revenue coming in the door and expenses going out the door, and predicting how it will keep your business running at an optimal level. When you stop and look at your financials periodically, you are able foresee the path that your business is on and make changes to your budget if need be to keep your account in the black and out of the red. Remember, a budget is just the plan on how to reach your goals, but proper financial management is the lighted path that will lead you there.
Tracking Your Expenses
Knowing what you are spending your money on is vital to your business. You need to be aware of where every dollar and every penny is being spent or planned to be spent before you can even begin to understand how to plan or make a budget or monitor your cash flow. Tracking your expenses will give you the information you need about which expenses are keeping your doors open and which ones are not. You will also be able to see trends from one period to the next which will allow you to make better strategic decisions about your business.