How to Improve Your Financial Literacy as a Small Business Owner
Welcome to Financial Literacy Month! As we celebrate Financial Literacy Month for 2023, let this be a REWARD and a REMINDER for every small business owner of how financial literacy is crucial for our business: it is rewarding because we acknowledge all the efforts we put into learning financial literacy to be a Finance Savvy CEO helps us to make better business decisions that support wealth building; as well as a reminder, especially for all small business owners who are still struggling with their business finances, keep going! You are doing just fine! Throwing in the towel, losing hope, or giving up, doesn’t give the rewards you’re so close to unlocking, we are here for you!
According to a study, 66% of small business owners in the US wish they knew more about their finances. Many entrepreneurs start their businesses because they have a passion for a product or service, not necessarily because they have a financial background. That’s why it’s important to develop your business financial literacy skills to help you make informed decisions and manage your business finances effectively.
In this article, we will explore various ways to improve your financial literacy as a small business owner. We will cover everything from basic business financial concepts to how you can become business financially literate, if you’re not already. So, whether you’re just starting out or have been in business for years, there’s something for everyone in this Financial Literacy Month edition of “How to Improve Your Financial Literacy as a Small Business Owner.”
What is Business Financial Literacy?
Business financial literacy is the knowledge and skills that you need as a small business owner to understand and manage your business finances effectively. It’s like having a compass to navigate the financial world of your business.
Think of it this way – when you’re driving a car, you need to know how to read the speedometer, use the brakes, and steer in the right direction. Similarly, when you’re running a business, you need to know how to read financial statements, manage cash flow, and make informed decisions about your expenses and investments to keep your business going in the right direction.
Having good business financial literacy skills is essential for the success of your business. It can help you make informed decisions, pivot quickly as needed, and avoid financial pitfalls that could potentially harm your business. So, no matter what stage you’re in of your business journey, improving your business financial literacy is always a smart move.
Why Is Financial Literacy Important for Small Business Owners?
As a small business owner, having good business financial literacy skills is crucial for several reasons:
- It helps you keep track of your cash flow and expenses so you can make informed decisions about where to allocate your limited resources. This can help you avoid overspending and keep your business finances in check.
- Strong financial literacy skills help you plan for the future of your business. By understanding financial concepts such as budgeting and forecasting, you can develop a strategic financial plan that will help your business grow and thrive over time.
- It can help you avoid financial pitfalls and potential legal issues that can harm your business. Understanding financial rules and laws can help you stay compliant and avoid costly fines or legal issues.
- Improving your business financial literacy can help you communicate more effectively with investors, lenders, and other stakeholders. By being able to articulate your financial situation and plans for the future, you can build trust and confidence in your business and increase your chances of success.
Overall, business financial literacy is essential for any small business owners who want to build their financial wealth, plan for the future, avoid financial pitfalls, and communicate effectively with stakeholders.
Are you ready to take the next step in becoming more business financially literate? Read on to uncover more about how you can do just that!
Which Areas of Business Finance Do You Need to Understand?
As a small business owner, there are MANY areas of business finance that you need to understand to manage your finances effectively. Here are just a few key areas to start focusing on now:
- Practicing Good Financial Hygiene:
Financial hygiene is not just nice and good to have but a must-have! Financial hygiene refers to the daily (or weekly or monthly or yearly basis) business financial practices and habits that help you keep your business finances clean and organized.Business owners consistently admit to a lack of attention business owners to their financial hygiene. We know that you may have incredible earning potential BUT if you aren’t practicing good financial hygiene and ensuring that you’re doing the daily, weekly, monthly, and annual practice that keeps you financially clean, healthy, well, and organized, your business is exposed to risk and is likely taking unfavorable financial hits that it shouldn’t necessarily be taking.Listen to the full episode of Good Financial Hygiene: Tips for Better Care now and uncover ways to become more financially hygienic!
- Paying Yourself Regularly:
Not so clear on what you should pay yourself as the business owner? What you pay yourself isn’t 100% of everything you make, but it isn’t 0% either. You would never expect someone to work for you for free, so you shouldn’t be working for free either!Paying yourself as a small business owner is an important area of business finance that can sometimes be overlooked because you simply don’t know how to best go about figuring out how much and when to pay yourself. It’s important to pay yourself a salary that reflects the value and the contributions you bring to your business while also ensuring that your business has the resources it needs to grow and succeed.Listen to the full episode of How to Pay Yourself as a Small Business Owner now and learn how to “double-dip” in paying yourself!
- Accurate Pricing Your Products/Services:
“Am I charging the right price?” is certainly a question that you’ve asked yourself a time or two, or maybe a hundred. In fact, it is one of the most common questions I get asked in regard to pricing products and services.The reality is, pricing products & services can be somewhat of a tricky game until you ground yourself in the principles of value creation. When you think about pricing, ask yourself, “What’s the value I am creating?” – not “What do I do?” Price is based on the value you create, not based on “what you do.”Pricing your products or services is a critical area of business finance that can greatly impact the success of your small business. Setting the right price can help you generate sustainable revenue, cover your costs, remain competitive in your market, and ensure you take more money to your bank at the end of the day.Listen to the full episode of Pricing Products and Services Tips now and uncover tips on how to price products and services for your business.
- Establishing Your Financial Trifecta:
Did you know that a small business requires much more than tax support alone to be financially stable? That’s just a start!Your financial trifecta is the business financial resources that your business needs for a solid financial foundation. There are three basic financial areas in your business that you must solution for in order to create a strong financial foundation to set yourself up for financial success, I call this your financial trifecta. Setting up your financial trifecta is critical to keeping your business on a financially healthy path that’s poised for long-term financial stability and sustainability.Listen to the full episode of The Financial Trifecta: The Financial Foundation of Your Business to learn what you need to implement in your business to reap the benefits of the financial trifecta.
How Can You Become More Financially Literate?
If you’re a small business owner looking to improve your financial literacy skills, there are several steps you can take. Here are a few tips to get started:
- Read articles and listen to podcasts about business finance: Books, articles, and podcasts available can help you learn more about financial concepts and best practices for managing your business finances. Use resources that are both easy to understand and relevant to your business.
- Take a course or attend a business finance class (group or private session): In Finance Savvy CEO, we offer courses or workshops (1-on-1 or group coaching) on business finance and financial literacy specially built to build your financial competence and confidence as a small business owner. These can be a great way to learn from an experienced and expert financial coach and get applying instantly what you’re learning directly into your business.
- Learn from other small business owners: Reach out to other small business owners in your community and ask for advice on managing finances. You can also join networking groups or attend events to meet other business owners and learn from their experiences.
- Use financial tools: There are several business financial tools available that we recommend which can help you keep track of your finances, create financial reports, and manage your business accounts. Consider using accounting software to help you stay organized and on top of your finances.
Improving your financial literacy skills will take time, but it’s well worth the effort. By understanding key areas of business finance, such as good business financial hygiene, paying yourself, pricing your products or services, and setting up your financial trifecta, you can make informed decisions that support your business’s long-term success.
Remember, financial literacy is an ongoing process, so make sure to continue learning and seeking out resources that can help you grow and thrive as a small business owner. With dedication, hard work, and BUSINESS FINANCIAL LITERACY, you can achieve your financial goals and build the business of your dreams.
BONUS: Download this checklist now to improve your financial knowledge designed specifically for small business owners.