Even if accounting isn’t your strongest skill, it’s essential to have a good understanding of financial management to keep your business running smoothly. Having the necessary knowledge about finances can help you make informed decisions and improve the efficiency of your company.
Although you don’t have to have a finance degree to become an effective financial manager, it’s important to understand the various aspects of business operations. This can be done by developing a solid knowledge base and an easy-to-follow strategy.
Succession Planning
One of the most critical factors you should consider when running your business is having a contingency plan in place should something happen to you or your partner. Having a good understanding of this can help you manage the various aspects of the business. You can also take advantage of a free consultation with a certified financial planner to improve your financial literacy.
Financial Advisory Team
A good financial advisory team should consist of professionals such as a certified public accounting firm, an attorney, a life insurance agent, and an investment advisor. Every team member should regularly meet to discuss the plan and ensure everyone is on the same page.
Cash Flow Statement
The cash flow statement is the most important financial document that any business should have. It shows the flow of money from one source to another. Unfortunately, many business people do not understand the basic concepts of accounting and debits and credits. However, when they talk about their company’s performance, they often use the cash flow statement to describe their company’s operations.
Accountant Questions
Most accountants provide reports and statements based on the assumption that their clients understand the ins and outs of how these documents are compiled. These are great resources for small and medium-sized businesses. Ask your accountant to ask you as many questions as possible during their one-on-one sessions.
Track Accounts
Instead of focusing on getting their books in order every year during tax season, many small and medium-sized business owners spend their time doing other tasks. One of the most effective ways to keep track of your financials is through software such as Quickbooks, which allows you to sync and view transactions in real-time.
Connect with a CFO Firm
Although accountants are great at providing advice, they are also tax people and auditors. Instead, CFO firms are composed of individuals responsible for running their clients’ accounting operations. They can help you understand the financials and provide the necessary tools and resources to improve your business.
Compare Financials
One of the most important steps that any business owner can take to improve their financial literacy is to compare their financials with their peers in their industry. This will allow them to learn from a successful peer.
Understanding Complicated Financial Details
Many business owners rely on accountants for their financials. Although they have a lot of specific knowledge, they often try hiding details from you by saying it’s complicated. This is not the case, as CPAs have tons of experience and can explain it to you in a way that’s easy to understand. For a year, ask your accountant to explain the numbers to you in a way that’s similar to what a fifth-grade teacher would do.
Data Aggregation Apps
A free data aggregation app can help you track your financials, including credit and cash flow. These tools are designed for small business owners so that they can get the most out of them. One of the most important factors these tools have in common is using AI to make recommendations and provide educational context.
Introductory Accounting Course
Financial literacy is very important for small business owners. Having a good understanding of accounting will allow them to make informed decisions and take action on their financial statements. No matter if you are an accountant or not, taking a basic accounting course is a great way to improve your skills.
Review Financial Statements
You should regularly review your financial statements with an accountant or CPA every month. They can help you explain the various details of the financials and compare them to the profit and loss statement. They can also help you understand the difference between accrual and cash accounting.