Ever feel like managing your business finances is just too overwhelming? You eventually don’t even want to look at the numbers, so you start to ignore the problem, which only makes it build up more.
Here’s a secret, though: for many business owners, the problem isn’t a lack of intelligence; it’s a lack of support. They just don’t have the right resources in place (whether it’s experts or knowledge bases) to navigate it on their own.
So, where do you start? What do you need to learn to make your finances work for you instead of against you?
Today, I want to outline some of the basics that every entrepreneur should know about financial literacy.
Start with the Basics: Know Your Numbers
If you’re new to financial literacy, the first step is to get a good understanding of the basics. Think of it like learning to ride a bike. Before you can tackle mountain trails, you need to master balance and steering. In the financial world, this means learning how to read financial statements, understanding the difference between revenue and profit, and getting familiar with terms like assets, liabilities, and equity.
Take the example of Sara Blakely, the founder of Spanx. Blakely had no formal business education when she started her company, but she took the time to learn the financial basics. She read books, attended seminars, and asked for advice from experienced entrepreneurs. This foundational knowledge was crucial in helping her turn Spanx into a billion-dollar business.
Budgeting is Your Friend: Map Out Your Finances
Creating a budget is one of the simplest yet most effective ways to manage your business finances. Despite this, many businesses don’t have one!
A budget is like a financial map that shows you where your money is going and helps you avoid those unexpected twists and turns. It helps you track your income and expenses, ensuring you don’t spend more than you earn. It also gives you a clear picture of where adjustments might be needed. Keep in mind that it won’t be perfect, but as long as it’s mostly accurate with a bit of room for flexibility, it will serve you well!
Think of Oprah Winfrey, who has always emphasized the importance of budgeting. Even when her career was taking off and she was raking in millions, she kept a close eye on her finances, ensuring every dollar was accounted for. This careful budgeting helped her build and maintain her wealth over the years.
When you create a budget, it doesn’t need to be overly complicated to start. Begin by mapping out what you expect to earn each month (income). Then, write out a list of everything you can expect to spend (expenses). Be sure to account for those irregular or once-a-year expenses, and always over budget slightly for unexpected expenses that will undoubtedly come up.
Track Your Cash Flow: Keep the Lifeblood Flowing
Cash flow is the lifeblood of your business. It’s not enough to know you’re making sales; you need to know when the cash from those sales is actually hitting your bank account. Positive cash flow means you have enough money to cover your expenses and invest in growth opportunities.
However, it can be tough to initially get a handle on your cash flow. A lot of businesses aren’t even aware cash flow is an issue because they don’t know what it can (and should!) look like. Mastering your cash flow should allow you to project expenses easily, use debt wisely, make decisions (like whether to lease or buy equipment), and control your working capital.
Once you have your cash flow under control, you can use tools like QuickBooks or Wave to keep track of it. These tools can help you monitor incoming and outgoing funds, forecast future cash flow, and ensure you always have enough money to cover your expenses. Take a page from the playbook of Jeff Bezos, who carefully tracked Amazon’s cash flow in the early days to ensure the company could continue its rapid expansion.
Educate Yourself Continuously: Stay Ahead of the Curve
It’s tough for most business owners to stay on top of changes to financial best practices and find new ways to manage their money. After all, when do you have the time?
Luckily, it doesn’t have to take time away from your business (or even that oh-so-precious coffee break!) Just a few minutes of reading or listening each day will help you start to understand the language professionals use, and some of their tried and true strategies.
Subscribe to financial news websites, join local business groups, and attend workshops or webinars on financial management. The more you learn, the better equipped you’ll be to navigate the financial landscape.
Network with Financial Experts: Build Your Knowledge
Building a network of financial experts can be incredibly helpful for business owners who need guidance. Seek out accountants, financial advisors, and experienced entrepreneurs who can offer insights and advice. These connections can help you navigate complex financial situations and make better decisions.
Many entrepreneurs owe their success to the advice they received from mentors and financial experts. By surrounding themselves with knowledgeable people, they’re able to make better financial decisions and grow their wealth.
Prime Capital can be a great starting point for this process! We always appreciate the opportunity to meet new business owners. Plus, we continue to offer this blog, our Cash Flow Masterclass, and plenty of other resources continuously so you can find the information you really need to get your business finances where you want them to be.
Small Steps, Big Gains!
Remember, financial literacy is not just about understanding numbers; it’s about empowering yourself to make decisions that will shape the future of your business.
Also remember this… Financial literacy doesn’t happen overnight, but taking small steps can lead to significant improvements. By starting with the basics, creating a budget, tracking your cash flow, continuously educating yourself, networking with financial experts, and using technology, you’ll build a solid foundation for making informed financial decisions and driving your business forward.
If you want to talk more about financial insights and how you can manage your cash flow, we reach out to us!
