As an entrepreneur, you need to be hardworking, focused, innovative, and excellent at managing persons working for you. Besides this, you also need to be financially literate because this increases the chances of succeeding in the highly competitive market. This way, you’ll save yourself from many mistakes that could cause your business to fail.
But what about financial literacy should you strive to learn as a startup owner? This must be the question you’re asking yourself to try and better understand how whatever financial challenges that might come your way. Fortunately, this guide has got the answers to your question detailing things about financial literacy you need to know as a first-time entrepreneur.
What’s Financial Literacy?
The phrase financial literacy refers to having knowledge and skills to use the resources while maintaining financial wellbeing effectively. Some of the financial skills you require include budgeting, understanding credit, investing, browning, and project management. With this knowledge and skills, you’ll be able to make informed decisions that’ll promote further business growth.
What Things About Financial Literacy Should You Learn as a Startup Owner?
Like when learning anything new, there are specific things that you first need to know to stand a chance of growing and improving. And if you desire to become financially literate, here are some of the things you need to learn;
1. Set Realistic Goals
One of the first things you need to do as you start your budding entrepreneurial journey is to set clear and realistic goals. This is crucial as, without a clear plan, you’ll not know the best direction to steer your business and ensure everything falls within your budget.
You shouldn’t set goals just for the sake of it. Instead, your focus should be on setting ones that are specific, result-based, measurable, time-limited, and achievable. This way, it’ll be a lot simpler to gauge whether you’ve achieved your objectives.
Besides increasing your company’s revenue, you can also set other specific and actionable goals. This includes improving your margins, reducing costs, bettering cash flow, and lowering debt. If you need any assistance, feel free to hire a fractional CFO.
With their help and mentorship, you’ll be able to know how best to streamline and optimize your business operations. And in the long run, you’ll manage to reach your set business goals.
2. Create and Stick To a Budget
While you can set excellent goals and develop innovative products or services, your success as a budding entrepreneur depends on how well you create and stick to your budget. After all, you’re expected to take a mathematical and analytical approach when running your business. Doing this is necessary even for the more experienced entrepreneurs to ensure that the finances are as expected.
For this reason, you need to create a budget that outlines the amount of money you spend. This will help you better track your spending within a certain period, for example, a month. You’ll have an excellent understanding of your company’s financial health by doing this. Budgeting also helps gauge other crucial aspects of your business, including;
- Monitor your customer’s monthly and yearly spending habits
- Whether you’re profitable, and by how much
- Impact of certain business decisions you made
Another advantage of having a budget is that it helps measure the effects of certain business decisions. Thanks to this, you get to tell whether some of your business decisions positively or negatively affected your business.
3. Maintain a Good Credit Score
Lenders are also in the business of making money, and to know the ideal individuals or business to loan, they carefully examine the credit score. With this in mind, you need to put in a lot of effort to improve your credit score because it’ll be used to gauge whether you can qualify for a loan.
And as a startup owner, access to credit will be critical to determine whether or not your business will be successful or not. After all, you’ll need a loan at some point, be it when starting your business, paying for some expenses, or wanting to expand its operations
You can boost your credit score through different methods, such as paying your bills on time and settling your credit card debts. If you need help to improve your credit ranking, you should consider hiring a credit repair service.
4. Separate Your Business and Personal Accounts
When starting a new business, you most likely use your personal savings to finance everything. And while this is certainly advisable, you shouldn’t make the mistake of using your personal bank account for both your business and individual expenses. As a result, you won’t enjoy certain tax benefits because your business could be assumed to be a hobby by a tax authority such as IRS. Because of this, some business expenses such as office furniture aren’t tax-deductible, and you end up paying more tax.
Now you know this, it’s best to have separate personal and business accounts. This will help you avoid any mix-up of your business and personal finances.
5. Have an Emergency Fund
Cash flow problems are one of the main reasons why the businesses of many budding entrepreneurs fail. This is because startups go through many ups and downs during their first weeks, months, or years, which harm the company’s cash flow.
And to ensure your cash flow isn’t considerably affected during the low months, it’s best to set aside an emergency. With the money set aside, you’ll ensure your business can still pay for its expenses, thereby avoiding having to close it.
The business emergency fund should ideally pay for between 3 to 12 months of your monthly expenses. And thanks to this, you’ll be certain that your business is safe from any unforeseen event that could affect its cash flow.
You must never overlook the significance financial literacy plays in ensuring your small business remains afloat even during tough times. And because you most probably don’t have the finances to hire a financial expert, it’s best to familiarize yourself with things about financial literacy.
This way, you’ll be able to achieve faster business growth and prevent unnecessary losses. These details have been outlined in this article to better enlighten you on how to make better decisions with your finances.