Are you ready to make informed decisions, manage your budget, and optimize your credit at your small business? A strong base of financial literacy is important for a small business owner, even if you have partners or accountants helping you manage your money.
Financial literacy means you have an understanding of these financial topics and can apply them to your personal and business practices.
- Creating and following a budget
- Saving money
- Managing debt and tracking spending
- Understanding your credit report
- Making investments
- Reading and preparing financial documents, like balance sheets, income statements, and cash flow statements
People who continually work on their financial literacy are better able to make and achieve financial goals, are less vulnerable to fraud, and are in a better position to handle disruptions in the financial industry that are beyond their control. As an added bonus, business owners who can talk money are more attractive to small business lenders and investors.Â
1. Start with your personal financesÂ
Getting a handle on your personal finances is a great way to begin building financial literacy. Then, you can move up to more complex business finances.
- Create a budget that shows all your sources of income (paychecks, investments, etc.), your fixed expenses (rent/mortgage, utilities, loan/debt payments), and your spending (nonessentials like eating out, shopping, and travel), and savings. At your business, this budget is similar to an income statement. You can manage your budget using a budget app, but as a learning tool, try doing it manually first!
- Check your credit report to get a complete picture of your financial situation. Everyone is able to order one free copy of their credit report per year from the three major reporting bureaus: Experian, TransUnion, and Equifax. AnnualCreditReport.com will pull your credit report from all three of these sources. Strong personal credit also helps as you establish business credit when your business is too young to have its own credit history.Â
2. Find experts to learn fromÂ
Free financial literacy resources are everywhere if you look for them. Search the Financial Literacy Resource Directory, or look to business support organizations that offer free online courses and webinars. Some examples include:
- The Center by Lendistry
- SCORE
- Small Business Development Centers
- Adult education centers and libraries in your area
You shouldn’t rely completely on podcasts to build financial literacy, but they can help you get comfortable with the language of finance and a wide variety of money-related topics. Some podcasts include:
3. Review your financial documents every monthÂ
Every business should have up-to-date financial statements. Creating them and reviewing them on a regular basis will make you more familiar with your business’s financial health. This monthly practice will also give you insight into the choices and changes that affect your finances.
Keeping these documents updated will also mean you are ready to take advantage of any business loan or business grant opportunities that may come up.
Basic financial statements include:
- Bank statements
- Balance sheet
- Income statement
- Cash flow statement
Small business ownership has been proven to create generational wealth. That being said, it’s important to note that if you are financially literate, the next generation down from you is more likely to be as well, and they will benefit from the strong foundation you have built.