What You Should Know and Where to Learn What You Don’t
Financial literacy empowers small business owners to make good financial choices. As a small business owner, you already know the basic financial skills required to run your business: budgeting, bookkeeping, understanding financial statements, etc. You also know there is always that one area (or more) where there’s room for improvement.
Boosting your financial literacy is easier than you think; you don’t need a degree in finance to grow a successful business. There is always room to improve your financial literacy and we have lots of resources for you.
1. Budgeting
The overall financial health of your business is dependent on your ability to budget. Understanding budgeting basics, including your business’s cash flow and profit, is crucial to assessing the viability and sustainability of your business.
At its most basic, monthly budgeting helps you determine if you’re making a profit — and if so, how much. With effective budgeting, you can also track client spending patterns over time. Knowing your client’s habits will also help you evaluate the impact of your business decisions. By tracking your finances, you’ll be able to determine which business decisions resulted in profit and which may have had a harmful effect on your bottom line.
For help with budgeting, check out these classes from Business Impact NW:
For pre-venture/early stage Businesses:
Launch & Grow - Learn the importance of record-keeping, understanding financial statements, cash flow projections, chart of accounts, financial ratios, and much more.
For Established Businesses:
Grow & Thrive - Take your business to the next level by examining financial projections, understanding data and trends, utilizing financial assessment tools and more.
For Both:
Business Expert Session: 5 Steps to Profit Master Class - Learn step-by-step practical strategies you can use to instantly see more leads, more sales, and more income.
Business Expert Session: New Year New Profit: Find $10K in Your Business - Learn how to build an effective lead-generation process that can put $10k+ in your bank account.
2. Bookkeeping
Accurate bookkeeping will give you a snapshot of your business’s records and provide timely financial information about your business’s health. Bookkeeping goes hand-in-hand with budgeting. Efficient bookkeeping allows you to better evaluate growth opportunities and how they fit into your future financial forecast. Good bookkeeping also helps you analyze your spending, prepare for any potential tax audits, and plan for the future. To understand your balance sheet, income statement, and cash flow statement, you need to build and maintain them first.
Here are some professional services provided by Business Impact NW to assist you:
Virtual Tax & Bookkeeping Coaching - Meet with a professional to set-up, review, and maintain your bookkeeping systems.
Grow with a Pro (Tax Professional) - Drop in to get your small business tax and bookkeeping questions answered, no cost or commitment.
3. Understanding Financial Statements
Small business owners have a lot of financial metrics and key performance indicators (KPIs) they need to track. From working capital to their profit margin ratio, it can be overwhelming for small business owners to choose and define the right metrics for their business. Before jumping into the deep end however, it’s imperative that you have a clear understanding of key financial statements: your balance sheet, income statement, and cash flow statement.
Here are some offerings provided by Business Impact NW to assist you:
Free Classes & One-on-One Support:
Square One – Learn the importance of developing cash flow projections.
Drop-In Business Coaching- Drop in to get your small business questions answered.
Free Resources
4. Invoicing
Effectively managing your cash flow also means creating a strategy for generating, sending, and tracking your invoices. Getting paid directly impacts your bottom line; having a fail-proof invoice plan in place should be one of every business owner’s priority. There are numerous invoicing platforms that allow you to receive and request funds, send reminders and track late payments. Although these platforms provide templates that help simplify the process, you’ll need to make sure you’re consistent when entering information.
Best practices for invoicing include:
A consistent detailed description
Your invoice should have the date, reference number, and be able to provide all the pertinent information at a quick glance. EVERY. SINGLE. TIME. This makes it easier for you and the client to navigate invoices as they go back and forth today and in the future.
The Due Date Is Correct
It seems obvious, but incorrect due dates can lead to late payments. Existing programs designed to track invoices sometimes determine the due date for you, be sure this is updated to when you expect to be paid.
Your Contact Details Are Accurate
Your contact details are subject to change, be sure you update this information on your invoices. Keeping your contact details clear and correct will ensure there aren’t any payment delays due to confusion on the client’s part.
5. Making Smart Investments
As a business owner, you’ll need to ensure that you’re making wise investments for your business that will benefit you, particularly going into the future. When that steady profit stream predictably leads to “extra cash”, it’s time to think about re-investing in your business. A growth cycle can be created by effectively reinvesting your profits back into your business. A cycle of growth delivers more profits and more options for further growth.
Here are some suggestions to help you evaluate which areas of the business you should reinvest in:
Save some for a rainy day
As a business owner you know business blips and hiccups are a part of the gig. Be prepared with a safety net of fast available cash for the next short-term cash flow pinch.
Invest in your marketing
Reinvesting in a great marketing plan is worth the extra cash. Paid ads and promoted posts through social media for example, can provide insight to market trends and create brand recognition.
Invest in your employees
Happier employees lead to happier customers, which is vital to the growth of your business.
Invest in your infrastructure
Work smarter not harder by investing in software or equipment that will improve operations or your customer’s experience.
Invest in an accelerated debt retirement
Finding out if early loan payoff has any benefit for your business is worth examining. Will it save you time or money? Are there any penalties involved? Will it prevent you from reinvesting in the other areas of your business? Every business is different.
About the author
Faith Hamilton is the Marketing Manager at Business Impact NW, and is responsible for promoting the organization, programs, classes, and events . Prior, Faith worked with the Technical Assistance Department as the point of contact for client inquiries and areas of assistance, trainings, and services. Before joining Business Impact NW, Faith served as Administrative Supervisor for various medical and dental small businesses. She brings her love of small businesses and a wide array of skills to her position derived from past experiences. Faith completed her Bachelor’s in Tourism Management from Central Washington University.