April is Financial Literacy Month, so now is great time to level up your business's financial savviness for a healthier bottom line. While most small businesses owners are experts at what they do—be it baking, servicing clients, or designing beautiful products—many are amateurs in financial matters. There is the additional complication of the blurry line between personal and business finances, as many small business owners rely on their personal credit and resources to fund their companies, especially in the startup phase.
Despite these challenges, small business owners are often solely responsible for managing price points, financial projections, budgeting, accounting, and taxes to ensure smooth and continued business success. When that's the case, a business owner must either choose to level up their understanding of financial matters so they they can run an efficient company and access capital, or stay stuck operating unfamiliar systems that hinder the company's ability to grow.
Why is it important to be a financially literate business owner?
Financial literacy gives entrepreneurs tools and understanding to manage their businesses effectively, elevate their decision-making, negotiation and leadership skills. There are two deeply related but separate areas that business owners need to manage: Finance and Accounting.
Finance has a forward-looking approach to how the business generates, uses, and manages money. This area focuses on investing, borrowing, budgeting, and forecasting to position companies for future growth.
On the other hand, accounting has a more day-to-day focus and records the business situation at a specific point in time, present or past. Accounting requires business owners to focus on having the proper bookkeeping and financial statements in place to analyze a company's financial position. Together, both accounting and finance give entrepreneurs the full picture to understand where the business is today, and what they need to do to grow and reach their future goals.
How to Level Up your Financial Literacy
The good news is that improving your financial literacy is within your reach. Here are a few tips:
Know that you may not understand it yet, but you can learn. If a 7-month old baby does not walk, you don't think the baby will never walk. He just has not yet developed the ability to do so. Understanding financial concepts to manage your business works the same way. If it sounds too complicated for now, know that you don’t need to know it all. You just need to know what will help you manage your business more efficiently and work to develop that skill. Not knowing something today does not mean you cannot learn. With the curiosity of a child, ask questions and find answers by surfing trusted resources on the web, listening to podcasts, or by reading books borrowed from your local library branch. You can also reach out to small business support organizations, like the Community Fund of North Miami Dade, to connect with the knowledge, resources, and experts that will help you develop your skills. Don’t leave it to the accountant to do when you file taxes next year. Take responsibility for managing your business effectively today.
Budget. This can be the scariest and most difficult step to financial literacy because it's the first, but it's also the most important. John Maxwell said it best: “A budget is telling your money where to go, instead of wondering where it went.” It's one thing to have a sense of your revenues and expenses in your mind, but quite another to see the numbers in black and white (hopefully not red) looking right back at you. This is where you face your fears head-on, no matter what you’ll find. Because you’ll understand where you are and what needs to be done. Create a budget for your business at the beginning of the month, and at the end of it compare it with your actual spending to understand what happened and make adjustments as you go along.
Surround yourself with trusted advisors and professionals. You don’t have to do it all on your own. Instead, hire a trusted accountant to handle the monthly bookkeeping and financial statements. You can also ask your accountant to help you understand your statements, or even find a mentor to provide financial guidance for your business.
Understand your credit position. For most small businesses, creditworthiness relies on the personal credit rating of their owners. Financial literacy means understanding your personal finances, how creditors and investors view your financial information to make determinations about you, and how those things can become funding opportunities for your business.