Financial Skills Small Business Owners Should Know

To run a successful small business, you need to understand and be able to properly manage your business’s finances. You do not need to be a fiancé expert to be financially literate or grow a successful business. Instead, you need a little direction and some skills to get you on the right financial foot.

The following simple financial skills are important to know as a business owner.

Understanding financial statements

It is crucial to that you stay up to date on your business’s financial health by regularly updating and understand key financial statements.

There is a plethora of financial metrics to track in business. To prevent from getting overwhelmed, prioritize your balance sheet, income statement and cash flow statement first. The following are the financial statements that are important for any business:

• Balance sheet: A measure of your assets, liabilities, and equity, your balance sheet can help you forecast, show business lenders your financial health, and more.
• Income statement: This is also known as a profit and loss statement. It shows your income, expenses, and profits.
• Cash flow statement: A report of all cash received and spent over a period of time that helps determine whether or not you can pay bills, process payroll, and more.

Bookkeeping

To understand your balance sheet, income statement, and cash flow statement, you need to build and maintain them first. That is where bookkeeping comes in handy.

Bookkeeping is the recording of your daily business transactions which can be done manually or a bookkeeping software. Doing this allows you to see the financial health of your business and set, identify growth opportunities, improve tax prep and much more.

Budgeting

Where you spend your money and how much you spend impacts your profits, cash flow, and longevity of your business. Budgeting is key to a financially healthy business.

When you set smart spending limits for your business, you will be able to plan better now and for the future. Take a look at your current spending habits to see if you can cut back anywhere, either by canceling unused subscriptions, negotiating better rates with suppliers and vendors, or finding less expensive alternatives for services that you need.

Invoicing

Most business owners use invoicing which is why you need to have a solid strategy for it. This ensure you will be paid on time, allows you track late payments, and send automatic payment reminders.

Building business credit

You need to build your business credit as your business grows. Business credit measures your ability to pay the business debts and is used by business lenders to assess risk. The following are various ways you can build business credit.

Keep business and personal finances separate

Open a separate business bank account and pay all expenses with your business income and business credit cards. This will make it easier for tax prep when that time comes and you will avoid inaccurate tax filings and have added liability protection.

Incorporate your business

Forming a corporation will help you separate your business assets from you and legally establish your business. You will also have an easier time getting a business checking account since many business banks require you to have a business tax ID number.

Be smart with your debt

Using a business credit card or line of credit is one of the fastest and wisest ways to build credit. Of course, you want to make sure you can meet your repayment obligations. By paying your balance on time and in full, you will avoid interest, late fees, and damage to your credit profile.

Regularly monitor your business credit score

You can monitor your business credit score on sites like Dun & Bradstreet, Experian, and Equifax. It is recommended to check at least once a month to make sure everything is accurate.