Financial literacy is key to business success, but a large number of entrepreneurs don't have the basic skills to keep their businesses afloat to year 5. A recent survey of Canadian small business owners revealed that 44 percent had below-basic financial literacy skills. Yet half of businesses with 6 to 10 employees say that a better understanding of their finances would help make them more profitable. We asked Lori O’Neill, an Ottawa-based growth company advisor and board member for entrepreneurship organization Startup Canada, for some basic tips on how to improve your financial know-how.
Just half of businesses survive to see their fifth anniversary. But business owners who boost their financial literacy skills stand a better chance of outlasting their competition.
Set Up the Basics
Many small business owners wait until they require funding to get their finances in order, but you should have a good understanding of financial management from day one. “It is important to create and maintain up-to-date accounting records, reconcile bank accounts, create a budget, monitor actual results against it regularly, and complete appropriate tax registrations and filings,” O’Neill advises.
If your accounting skills are less than stellar, hire a pro and set up regular meetings to ensure you’re on top of your profits and losses. And if you don’t have a solid understanding of how to use your accounting software, find an online tutorial or hire someone to help walk you through all the features.
Understand Your Cash Flow
As your business grows, your financing and cash needs will change, and they can do so quite quickly, warns O’Neill. “If your revenues are growing and your business is doing well, you could still have cash shortages due to working capital investment. With a strong bank relationship, this can be managed, but you need to demonstrate understanding of the financial management and spend the necessary time to manage your cash carefully,” she says.
Many business owners are surprised to learn that an increase in profit does not mean an increase in cash. Regularly reviewing your budget, assessing results against it and adjusting it as needed will help you anticipate and deal with cash-flow issues before they’re too late to fix.
Build a Solid Team
Beyond hiring the right staff members to help grow your business, it’s important to build a trusted team of professionals – including lawyers, accountants and consultants – to help you monitor your business success, adapt as you grow and understand external financial factors, such as fluctuations in the market. “Entrepreneurs need to be patient and creative, but also nimble and open to advice and change,” O’Neill says. She recommends setting up an advisory board of local experts who are willing to guide you through challenging financial decisions.
Learn as You Go
Just half of businesses survive to see their fifth anniversary. But business owners who boost their financial literacy skills stand a better chance of outlasting their competition. Enroll in a night course at your local college or university, ask peers to recommend books and websites, and find out which non-profits, community groups and professionals provide workshops and webinars. Startup Canada, for example, offers weekly discussions on Twitter where entrepreneurs can ask an expert questions by following #startupchats.
The more you learn about financial management, the easier it will be to grow your business and increase your profitability.
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