5 Things Every Business Owner Needs to Know About Finances

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The Financial Fundamentals: You Don't Have to Know It All!

Are you a business owner who breaks out in a cold sweat at the mention of financial statements or cash flow projections? Don't worry; you're not alone. Many entrepreneurs find themselves overwhelmed by the complexities of financial management. But here's the good news: you don't have to know it all!

In fact, trying to be an expert in every aspect of your business can be a recipe for disaster. Instead, focus on mastering the fundamental financial practices that will set your business up for success. And when it comes to the nitty-gritty details, don't hesitate to outsource to experts who can handle them with ease.

I mention this a lot because it’s such good news, there are so many part-time or fractional experts that serve small to medium sized businesses who need help in a particular area for an indefinite time period so that you can focus on scaling your business and maximizing your profits. 

However, you do need to understand the financial fundamentals so that you can keep your financial team accountable and know what success or failure looks like. 

So, here are my top 5 financial areas that I believe every business leader should know:

1. Budgeting Basics

Budgeting is like creating a roadmap for your business's finances. It allows you to plan and allocate resources effectively, ensuring that you have enough cash on hand to cover expenses and invest in growth opportunities. Be sure to build your budget on the most important things first like your labor and tools for your people to create an outstanding customer/client experience. 

Also, don’t forget to budget in a 10-20% savings for unforeseen issues, improvements or a new revenue stream in the future. Be sure to never budget more than your conservative projected income. Empower an Accounting Director to produce weekly budget reports so that you can see how the business is doing and ask great questions and listen to your experts advice. More on this later.

2. Cash Flow Management

Cash flow is the lifeblood of your business. Without it, even the most profitable ventures can quickly run into trouble. Keep a close eye on your cash flow by monitoring your incoming and outgoing funds regularly. Work with your financial team to look for ways to speed up receivables and delay payables as much as possible to improve your cash flow position. And remember, it's not just about how much money you make—it's also about how effectively you manage it. 

Just like I mentioned in the Budgeting Basics, be sure to create financial margin then place these funds in a high interest and highly liquid checking or savings account. Always make sure your money is working for you and not against you. Just like your personal finances you want to invest in assets so that they can help you pay your necessary expenses. 

3. Financial Reporting

As I mentioned in the Budgeting Basics, financial statements may seem intimidating, but they're essential for understanding your business's financial health. Afterall, you have to protect the main thing that allows you to stay in business, cash! Not enough cash will limit your decisions and cause you to take on too much debt that could ultimately put you at risk. 

So, start by familiarizing yourself with the three main types of financial statements: 

1. Balance Sheet
2. Income Statement
3. Cash flow statement. 

These reports provide valuable insights into your business's profitability, liquidity, and overall performance. If reading financial statements feels like deciphering a foreign language, don't hesitate to seek help from an accountant or financial advisor. I’m going to keep emphasizing this point. You don’t have to do this alone. In fact, unless you are a financial guru, you shouldn’t. If you are not careful you will follow hundreds of different “rabbit holes” in trying to figure out financial statements and issues that will suck the life right out of you. 

4.Tax Planning

Taxes may be inevitable, but that doesn't mean you have to pay more than necessary. Strategic tax planning can help you minimize your tax liability and maximize your savings. Take advantage of tax deductions, credits, and incentives available to small businesses. 

Again, unless you are a financial guru, outsource this task. A highly qualified tax professional will save you a lot of money now and in the future and definitely pay for themselves in money, time and peace of mind.

5. Risk Management

Every business faces risks, from economic downturns to unexpected emergencies. Mitigate these risks by identifying potential threats and developing contingency plans to address them. Invest in insurance coverage to protect your business against liabilities, property damage, and other unforeseen events. And don't forget to build up an emergency fund to cover unexpected expenses and keep your business afloat during tough times. Just like I mentioned in Cash Flow Management. 

You can’t foresee everything but you can plan well and keep a strong cash reserve that is earning your interest. This is another reason why strategic planning is so important. It helps you have crucial conversations and build plans and systems that will keep you ahead of issues, as much as possible. 

What’s Next?

Remember, you don't have to be a “financial guru” to run a successful business. You just need to know these wise financial fundamentals. Spend less than you earn, put your money to work for you, and plan for the future. 

If you focus on mastering these financial fundamentals that matter most, and don't hesitate to hire experts, when needed. You will stay informed and proactive, you can ensure that your business's finances are in good hands and set yourself up for long-term success and create the type of business that you want!

Enjoy the Process.

Grow more. Risk Less

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