The principles of financial literacy benefit everyone who wants to have a better relationship with their money. This applies to small business owners as well: Understanding how the basics of money management apply to your workflow can give you an advantage in sustaining and growing your business.
No matter where you are on your business journey, it’s always important to go back and review the basics. Here’s three financial literacy tips every business owner needs to know.
Track and Project Business Cash Flow
Determining cash flow and understanding how your money is moving each month is an important part of financial literacy – especially if your business is susceptible to seasonal trends. To achieve that goal, it’s important to track and project your business cash flow every month.
Using a calculator to track cash flow based on business trends allows you to truly understand your enterprise’s financial health by seeing what goes in, what comes out, and how much you are investing into the company. It’s incredibly important to separate your expenses by opening an account for business spending: Either a business checking account, or a separate business credit card.
Keep on Top of Your Credit Score
As your small business grows, you may need to lean on financing to expand. As part of the qualification process, lenders may also look at your personal credit score.
When business lenders consider when to extend credit, the primary consideration is how the business will repay the debt through cash flow. After that, they look at the owner’s credit. If you own at least 20% of the business, your credit may be considered as a secondary factor. That’s why it’s important to understand what contributes to your credit score, and how to improve it to its best condition. You can get a free weekly credit report from AnnualCreditReport.com to see where your credit stands, and what you need to do to improve it to its best. With healthy credit, you will have more opportunities to grow your business.
Set Aside Money for Unplanned Expenses
One early mistake new business owners make is re-investing all their earnings back into their business. While it’s exciting to see growth and expansion happen in real time, it can create problems if you aren’t reserving some cash towards future planning.
Business downturns, emergency repairs, seasonal pauses, and other unexpected situations can cut into your funds without warning. If you don’t have that money available in your business’ savings account, you may find yourself scrambling to find other places to recover that expense, including business cutbacks or taking debt. That’s why it’s important to put money away in a dedicated savings account for unexpected purchases. With a healthy reserve fund, you can be prepared to weather the financial storms you will inevitably face throughout the year.
Financial literacy is critical to help any business become its best – whether you’re just starting out or looking to grow your output year after year. By learning about the right skills and tools, you can make sure you’re on the path to being successful year after year.
Need help getting your footing around financial literacy? SESLOC’s business services team are here to help. Contact us today to talk to an expert who can give insight into the best practices for your goals.