As a business owner, financial literacy is essential for successfully running your company. This is the understanding and successful demonstration of knowledge on financial terminologies, concepts, tactics, and skills such as budgeting, taxing, borrowing, investing, and so on within your business. The absence of all these is referred to as financial illiteracy.
Financial literacy for your business is very important because it determines its success and failure to an extent. It gives you the tools, the knowledge and the efficiency to manage a business effectively. Whether you hire a professional financial advisor or not, you should know the basics of your business’ finances.
Tips to Improve Financial Literacy
- Be Open to Learning
The easiest way to improve financial literacy as a business owner is to build your business library and resources. Take an online course, attend classes where you can, read business books, listen to podcasts and subscribe to financial newsletters.
You should also learn how cash moves in and out of your business and how to manage the cash flow. The more you understand your business finances and cash flow, the better experienced and knowledgeable you are at making informed business decisions. Take a course if you must and yes, that expensive one too.
With these few simple steps, average financial literacy for your business can be achieved on your own.
- Perform Due Diligence Before Borrowing
A small business loan, when applied well, can be beneficial to your business. If you need to borrow, do not accept the first loan offer you receive. Perform your due diligence, research and consider your opinions. Compare terms, interest and fees from multiple lenders, and also study your finances to see if you can afford to pay back the loan.
When applying for a business loan, make sure that you fully understand what your obligations are. You should know what your loan term is, your payment due dates, the interest rate, the payoff amounts, and other aspects of your business loan. Make sure to ask all the necessary questions and note all the important information. If you are confused, ask your lender, or loan officer to further explain this information.
It is imperative you also understand your cash flow and income flow. This will help you decide the best repayment plan for you. If you make monthly income, you can opt for a monthly repayment and if you make the weekly income you can also opt for a weekly repayment to help you pay off your loan faster.
- Budgeting Efficiently
Learning how to budget is one of the most important and simplest steps toward improving financial literacy for your business. It doesn’t have to be hard; it can be something as simple as a spreadsheet. At the end of every month, compare your actual spending to your business budget. A budget helps you understand your business needs and identify unnecessary spending. Creating a budget helps you review your financial situation, what gets measured gets managed.
It is important to not only create a budget for your business but firmly stick to it. This goes a long way than just tracking your expenses. Instead, you will have to think critically about how you are spending your money and look for ways to cut corners on your outgoing cash,if need be.
- Understand your credit rating
Understand that your credit score and rating will determine the amount of loan you might be able to apply for as a business owner and work towards improving this and making it better. Your credit score is your financial reputation and should be kept intact to protect it. Having a good credit score/history is very important because a poor one is a reason SMEs are denied loans.
Click this link to read up on how to boost your credit score.
- Invest Wisely
“Do not put all your eggs inside one basket.” This is probably the most popular investment tip out there. Diversify your portfolio.
Investment done well yields good profits and returns in the long run. Investing has become a fast-growing trend recently, but before you go ahead to start and even if you are already investing, you should consider how much or how little risk you are willing to take with your money. Take this risk appetite quiz to determine your risk appetite.
Take your time to understand your risk appetite and invest carefully. Most importantly, invest in only what you understand.
- Talk to a financial professional.
As a business owner, it is advised that you hire professionals to help in certain areas of the business. A financial professional can answer your financial questions, whether it is about the basic day-to-day money situations or more complex long-term scenarios. They can also assess your current situation, help you make a plan for all of your financial needs and help you stay on track going forward.
- Business owners of small companies and startups benefit from improving their financial literacy.
- Financial literacy includes knowledge in budgeting, investing, borrowing, taxation, and personal and business finances.
- Advantages of financial literacy for businesses especially business owners: Understand the Impact of Your Actions, Become Financially Efficient, Make More Informed Decisions
- Financial literacy sources include business books, financial magazines, corporate podcasts and finance blogs.
- Only choose financial literacy sources from proven experts with impressive business resumes.
- Subscribe to our newsletter for financial resources for your business.
- Visit our Blog for articles on financial literacy for your business.
- Take this quiz to find out your financial literacy score. Financial Literacy Quiz – BizNurture Blog