Running a successful small business means managing and understanding your business’s finances. Thankfully, you don’t need to be an expert in all things finance to grow a healthy and successful business. All you really need is some tips to point you in the right direction and some accessible skills to get you headed down the right path.
Below are 5 simple financial skills that you should know as a small businesses owner. Implement these, and success is just around the corner.
Running a business is no easy task and often requires you to learn new skills, especially those related to financial management, So keep on reading if you’re looking to learn about the 5 most important financial skills to master as a business owner.
Understanding your financial statements
You’re not going to get very far if you don’t know what you’re looking for. First things first, you’re going to want to stay up to date with your business’s finances by ensuring you’re regularly updating, reading and understanding all the key financial statements you’re faced with.
There are endless ways to track your financial metrics. To ensure you don’t get overwhelmed by all these numbers, put priority towards your balance sheet, income statements and your cash flow.
So how do these 3 things differ, and why are they so important?
Balance Sheet
This is a measure of your assets, liability and equity. This will help you to forecast your business and show lenders how financially healthy your business truly is.
Income Statement
An income statement, otherwise known as a profit and loss statement shows your income, expenses and profits. This puts into perspective your business’s ability to make profits.
Cash Flow Statement
Having a clear understanding of your cash flow is crucial. Cash flow is everything that is received vs spent within your business. Having this all recorded helps you to determine if you’re able to pay things such as bills, payroll and other expenses.
Bookkeeping
To understand the three things mentioned above, you’re first going to need to maintain them over a period of time. This is where bookkeeping comes into play.
Bookkeeping is the ongoing records of your everyday business transactions. How you choose to do this is up to you. They can be recorded manually through spreadsheets, through a third party bookkeeping platform or if numbers really aren’t your strong suit, you can hire a bookkeeper.
Having clear bookkeeping records will give you a snapshot of your business’s financial health. From this, you are able to strategise your next steps and forecast future plans. Good books will help you analyse your spending, set concise budgets and identify high-growing opportunities. It will also help you to prep for your taxes as you have every transaction already recorded, making any audits you may encounter down the line more simple.
Budgeting
We’ve all heard the word budgeting before, but how does it play a role in your business’s finances? What you spend and when you spend it has a direct impact on your cash flow and your profits. Therefore it goes without saying that a budget is incredibly important and shouldn’t be looked over when running a business.
Setting a clear and smart budget from the get-go allows you to plan for both now and the future. Bring out your books and take a look at your current spending. Is there anywhere you can cut back? Can you cancel unused subscriptions? Negotiate better rates with suppliers and vendors? Are you able to find more affordable alternatives for regularly used services? There’s always a way to cut back your spending, and budgeting will help you find those ways.
Invoicing
Everyone wants to get paid, and getting paid is an absolute must when it comes to business. Many businesses will be working with customers, clients and vendors. All these people and services need to be billed. Because of this, you need a strong invoicing strategy under your belt from the day you open. This will ensure you get paid on time, track payments that are late and send automatic reminders of invoices when you’re yet to be paid. There are many online platforms that can help you implement this smoothly.
Building Your Businesses Credit
As your business grows, so do the things you need to keep it afloat such as financing and real estate. In order to get this, you’re going to need a strong business credit.
Business credit should be separate from your personal credit and is a measure of your business’s ability to pay back debts on time, allowing lenders to assess the risk. So how do you build a strong business credit?
Keep business and personal separate. The last thing you want is to have your personal credit mixed up with your business credit. Start by opening up a separate business account and ensure you pay for everything business-related through this. Not only will this make prepping for tax much easier by not having to sort through every purchase you’ve ever made deciphering if it was business or personal, but you’ll also avoid having inaccurate tax filings and have that added liability protection.
Incorporate your business. If you turn your business into a corporation (C-corp, S-corp etc) this will help you to legally establish your business and separate all those assets from yourself. Not to mention you’ll have an easier time getting a checking account!
Using a credit card is a surefire way to build your credit, but it can also quickly build debt. It’s always recommended that you meet your repayment obligations, avoiding compounding interest, late fees and dings to your credit, all things that can be avoided if properly maintained.
Know your score. While it may seem excessive, we recommend that you check your score at least once a month so you always know where you’re sitting.
Implementing these 5 financial business skills will help put you on the right track for a financially healthy and successful small business. So get out there and bring your business dreams to life one financial step at a time.