In today’s highly volatile era, running a business is no cakewalk. Business managers and entrepreneurs have to oversee every business function alongside remaining abreast of transforming industry norms and trends. From supply chain to marketing, IT, human resources and finance, each business area requires utmost effort, time, and investment. Nonetheless, financial activities, such as cash inflow and outflow, investment decisions, budgeting, and so forth, keep business owners on their toes. For this purpose, it’s incredibly crucial for every business professional to hone essential financial skills and capabilities to enhance their financial literacy. These skills include forecasting and budgeting, financial statement analysis, bookkeeping, improving business credit, leveraging technology, etc.
Every small business owner who strives to run their company’s routine operations successfully must master these capabilities and enhance their financial literacy. But which ones hold utmost significance? Let’s discuss this below.
Analyzing financial statements
Every organization relies on financial statements to calculate, manage, and control expenses, debt, profitability, and revenue. Financial statements serve as critical tools that aid in measuring company performance and exploring future expansion opportunities. Nonetheless, financial statement analysis is a skill learned through experience and isn’t easy to master. Given this reason, small business owners and professionals should explore advanced education options to enhance their financial savviness. What’s more, due to the flexibility of eLearning, professionals can consider pursuing a master’s program or certifications while managing business activities. For instance, they can opt for CPA certifications and benefit from online review courses, monitor CPA exam scores release, and take webinars.
Such certifications instill essential financial skills, ultimately boosting your organization’s financial operations.
As you’re surely aware, there are many financial metrics to keep track of in the corporate world. To prevent becoming overwhelmed, emphasize your income statement, cash flow, and balance sheet statement. Let’s explain further:
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Balance sheets
It’s a financial statement that organizes and represents your assets, equity, and liabilities. This statement is critical to demonstrate your financial health to company lenders and investors.
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Income statement
Your income statement often referred to as a profit and loss statement (P&L), shows how much money you make, where it’s spent, and where you can minimize it. It provides you with an estimate of your company’s profitability.
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Cash flows
It provides a thorough summary of all incoming and outgoing cash over a particular period, enabling you to strengthen cash management.
Where you spend your cash and how much you invest on a particular expense/resource or over a specific period impact your cash flow, earnings, and business longevity. Therefore, it should go without saying that you must focus on budgeting and devise appropriate strategies.
Setting appropriate spending restrictions for your small business will help you plan better today and in the future. Examine your current spending patterns to see if there are any areas where you may cut costs. It may entail canceling unused subscriptions, negotiating better pricing with suppliers and vendors, etc.
In business, monitoring your payments is highly critical. Many business owners have customers, distributors, or vendors who need to be billed for various services. So, you’ll need a solid invoicing approach that ensures you’re paying them timely. Also, learn how to limit bad debts and manage invoices for taxation and audits. For this purpose, it’s better to rely on technological solutions, like payment software.
Bookkeeping
By definition, bookkeeping is the constant record of your daily business transactions. You can do it manually with spreadsheets, with a third-party bookkeeping tool, or with the help of a bookkeeper.
Bookkeeping will provide you with a snapshot of your company’s financial health. It will allow you to plan and forecast for the future, analyze spending and create a budget, improve tax preparation, and assist you in dealing with any IRS audits. While many bookkeeping software exists today, honing this skill is critical to overcoming system loopholes.
Developing a robust business credit
As your small business grows and requires financing or attracting investors, you’ll find that you need excellent business credit.
Business credit measures your company’s capacity to pay its debts, which lenders and investors use to determine risk. Let’s see how you can work on this:
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Separate your business and personal finances
Establish a separate business bank account and cover all expenses with your income and credit cards. It will make tax preparation much easier because you won’t have to sort and segregate company and personal spending. You’ll also avoid making mistakes on your tax returns and have more personal liability if you do it manually.
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Incorporate your company
You can legally construct your firm and separate your commercial assets from private ones by forming a corporation, like a C-corp, S-corp, or LLC. Because many business banks require a business tax ID number, you’ll find it easier to open a business checking account.
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Keep an eye on your debt
A surefire way to build business credit is to use a business credit card or line of credit. Naturally, you want to ensure that you will be able to meet your repayment commitments. You’ll avoid compounding interest, late fines, and dents to your credit record if you pay your debt full and on time every month.
Conclusion
Small business owners, entrepreneurs, and business leaders must work on their financial literacy and know-how. To survive in today’s competitive markets, they must ensure smooth finance operations and higher profitability. For this reason, it becomes indispensable to hone particular skills such as financial statement analysis, budgeting, bookkeeping, invoicing, etc.
Alongside this, they must maintain pace with technological advancements to improve finance activities and strengthen their industry position.
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