Strong business financial literacy skills will make your business profitable
What do you think is more important in business: sales or profit? This is a trick question because without sales there would be no profit in a business. However, without constant profit in a business, there would be no activity.
As a business owner, you have to wear many hats, including that of a financier.
You don’t need to be an accountant, you don’t need to keep your books, but if you are the CEO of your business, you need a thorough understanding of your business finances.
You can hire experts to advise you, but if you don’t have basic financial knowledge in your business, you won’t understand the decisions you make in your business. The impact of those decisions you make affects the bottom line, which is profit.
Here are some ways to improve your corporate financial literacy skills:
1. Understanding the income statement
The income statement is the most widely used financial report in business. You can create your budget from the income statement, your operating forecast and measure your key performance indicators all from the income statement. When you understand how to interpret income statement numbers, you will have a clear understanding of how your business decisions affect the profitability of your business.
2. Create a financial plan
When you create a 12-month forecast, you are creating a plan for your business, giving your business direction and concrete steps your business will take to meet the company’s financial goals.
3. Monitor your progress against this financial plan
When you have established a financial plan, you should monitor your progress against that plan each month. This allows you to spot deviations from your plan and understand what has kept you from reaching your goals. Conversely, if the differences are favorable, you know what is going well and continue on this path.
4. Use a cash management system
Managing cash flow and preventing cash flow shortages is a critical activity in protecting your business from financial ruin. You need to plan your cash flow six weeks or more in advance and make sure you keep cash reserves to help you get through tougher financial times.
5. Monitor unpaid accounts receivable
Don’t be afraid to follow up on late payments. Too often people leave their collectibles out of date, and collecting older payments is much more difficult than keeping up to date. Keeping track of your business’s unpaid receivables and early collection makes cash flow easier.
6. Plan for taxes
Tax planning is crucial advice, as many business owners fail to set aside taxes owed on the profits they make in their business and face a hefty tax bill at tax time. Paying taxes is part of the business, so plan your tax payments and avoid surprises.
The bottom line is that the best way to kill any CEO Impostor Syndrome you might be experiencing is to know the numbers for your business. When you have someone guiding you along the way and teaching you what you need to know to keep your business profitable, you secure the financial future of your business. Never give up your financial power.