Financial Literacy Month and Your Business
April is a month for spring cleaning, starting fresh, and getting into shape—financially speaking. For over a decade April has held the designation of Financial Literacy Month. While the movement was initially focused on improving the financial prowess of individuals, financial literacy is also a priority for business owners and entrepreneurs. It is not difficult to see the connection between businesses and financial literacy, as understanding how money works—and how it doesn’t—is key to making sound decisions that result in profits for the short and long term.
Unfortunately, a substantial number of business owners describe themselves as financially illiterate. According to a study conducted by Intuit, more than 40% of small business owners identify as lacking in the financial literacy department. 39% report that they don’t follow financial or economic news and 28% are currently in debt. These statistics are a little surprising given that entrepreneurs are in the business of making money. Regardless of how well thought out the business model, product innovation, or distribution channels may be, financial literacy is the foundation of running a successful company. Here are four tips to whip your financial wellness into shape.
Utilize smart tools
Most business owners are not financial experts. Entrepreneurs have to wear many hats as they build a business but it takes a degree of training or—at the very least—experience in order to successfully manage the finances. However, it is not uncommon for someone without much experience in accounting or finance to be managing these tasks in the early stages.
To ensure your business is on the right side of the financial literacy spectrum, be open to integrating smart tools and financial systems into the business early on. A number of helpful, intuitive accounting and finance tools exist for businesses that assist with recordkeeping, payroll, benefits management and company cash flow. Cloud-based applications such as Bill.com, Expensify, and Gusto can save you lots of time with basic accounting functions. Find the tools and systems that jive best with your organization, and be willing to test a few to find the right fit. At P2Bi, we’ve been using Bill.com and Expensify for a long time now, and we love both. They save us a LOT of time, and we think they will you, too.
Understand your cash flow ASAP
In addition to utilizing the right tools, business owners can boost financial literacy by understanding organizational cash flow. Knowing what is coming in and going out—when expenses are due and when contracts will (hopefully) be paid—is the foundation of managing cash flow in a business. Recognize, understand, and plan for the true cost of customer acquisition, marketing spend, and any ongoing borrowing or new capital that may be needed. High-growth companies like software-as-a-service (SaaS) enterprises must have an even greater understanding of cash flow, especially during the startup phase, due to their unique business model and need for large amounts of capital early.
To manage cash flow successfully, businesses can employ a number of forecasting techniques and tools. Projecting out expenses versus inflow of cash from sales is a powerful exercise for companies in any industry and should be completed periodically to ensure cash troughs are adequately covered. If you want to learn more about building and using a cash-flow forecast, check out our webinar and download a forecasting template to help you get started.
Educate yourself (and your employees)
Financial literacy starts with education. Workshops, seminars, and mini courses are readily available through a number of different outlets online and in your community and provide a quick and easy way to improve financial skills. Lynda.com hosts some great content that can help you get up to speed.
Keeping up to date with financial news and trends also provides simple access to ideas and insights that may provide ongoing education on certain topics. Offering employees the opportunity to learn from finance professionals either on-site or outside of the office is a smart way to enhance the financial literacy of the entire company, and it can be added to your list of employee perks. With so many outlets for financial education, continuing to enhance financial literacy should be relatively simple.
It is easy to get caught up in the day-to-day operations of the business. Tasks like managing employees and assignments, networking with prospects and clients, and continually improving your product or service often take priority over everything else. While these activities are essential to running a successful business, entrepreneurs also need to focus on the big picture every now and then. Planning ahead by giving serious consideration to the long-term growth of the business, the exit strategy—if there is one—and business succession are just as important as the daily grind. Financial literacy plays a major role in the future needs of a company and entrepreneurs need to invest the time and energy in these tasks.
Take a few simple steps to ensure your growing enterprise is on the right financial track. First, you may want to spot check your own level of financial literacy by checking out Intuit’s Financial Literacy quiz. No matter where you stand, implementing the right tools and systems, understanding your unique cash-flow situation, continuing your education, and planning ahead are all beneficial in reaching a higher level of financial prowess for yourself and your business. Need more help? Look locally for an outsourced CFO or similar financial consultant to help you get up to speed more quickly. We have a list of trusted partners if you’re interested in learning more about their services—spending money to work with a professional can save you a lot in the long run in the way of your precious time, success, and cash flow.
Happy Financial Literacy Month!