Forget about not being good at math in school growing up. Fears around money are all too common for entrepreneurs, but in order to ensure your business success you need to educate yourself. Financial literacy goes beyond just knowing calculationsâ€”it is about understanding finance so that you can make informed and effective decisions in running your business.
You may have the best business idea or the most innovative product in the market but if you do not have the essential financial knowledge in managing the money your business makes, you could find yourself out of business. Five years is the typical number when businesses start to fold with poor money management among the top three culprits.
Itâ€™s critical that you regulate cash flowâ€”money coming in and money going out of your business. Also, concise record keeping will help you create realistic operating budgets and forecasts.
Financial literacy is a skill that can be acquired. Like many founders, whether they are planning to start their business or have been in business for years, you probably havenâ€™t taken up any finance courses. You do not have to be a certified accountant, but you need to be able to understand how well your finances stand despite a volatile economy.
As an entrepreneur, you should set aside time to have a handle on your companyâ€™s finances. Remember, the goal of any business should be to make money, to become profitable on top of providing a much needed service or product.
According to Small Business CEO, here are some of the more common obstacles that can impede financial literacy.
- You hate numbers and you started a business because of rising unemployment or thereâ€™s a great opportunity for your ideas. You know you could hire someone, say a bookkeeper or CPA, to do the math for you, even if it is your business and your money youâ€™re putting on the line. This doesnâ€™t have to be a full-time job but a part-time gig.
- You pretend to understand what your accountants are explaining to you about your financial statements because you donâ€™t want them to think you donâ€™t know anything about finance. You donâ€™t understand about P&L statements or break-even analysis.
- You simply do not have time. Between juggling your business, your family and friends, you feel that your finances would be better off handled by your accountant or bookkeeper.
As the owner of your own enterprise, financial literacy is important so that you’re not the last one to know if your business is folding or growing. With financial literacy, there is an increased potential for your small business to develop into a BE 100s companyâ€”the nationâ€™s largest black-owned businesses with revenues in excess of $15 million.