What are some tips that can help business owners achieve financial literacy?

Financial literacy is all about understanding your business finances. It involves having sound knowledge of financial terminologies, theories, concepts, practices, and statements – in other words – a financial education. All of this helps business owners understand their company’s finances and the factors involved in affecting their profitability.

 That said, an entrepreneur doesn’t have to have a business degree to understand or excel at financial literacy. Even if one doesn’t have an accounting background, learning the basics can help in making informed decisions about their finances.

Be Laser-Focused on Your Finances.

Building a solid financial foundation starts with having a thorough understanding of your current financial situation. If you don’t know where you are financially, you can’t create and execute a plan to get you to where you want to be. You should know on a daily basis of where your money is and where it’s going. If you don’t know these two things – you have no idea of what you’re working with.

 If you’re new in your business and can’t afford a bookkeeper, I recommend using resources like QuickBooks and Hurdlr. Both are easy to use, possess rich functionality and will help you track your expenses.

Take Advantage of Financial Education Resources.

If an entrepreneur is not great with numbers, contacting a certified professional accountant is where they should start. Even with the help of an accountant, making informed business decisions will be challenging if one can’t read a profit and loss statement. Two great free resources on the internet are the Small Business Administration’s (SBA) Financial Management for a Small Business Workbook and LinkedIn Financial Essentials for a Small Business.

In your experience, what are some financial pitfalls that start-ups face?

Neglecting Proper Bookkeeping.

One of the most common mistakes is failing to maintain accurate financial records. Investing in accounting software or hiring a professional to ensure company books are in order is essential to success. Regularly updating and reconciling company accounts is a must.

Not Creating a Budget.

Not having a budget is a recipe for disaster for any business. It’s critical to create a realistic budget that outlines income, expenses, and profit goals. This will help in making informed decisions and avoid overspending.

Mixing Personal and Business Finances.

Combining personal and business finances is a common mistake. Open a separate business bank account, use a dedicated credit card for business expenses, and strictly separate personal and business finances.

Ignoring Tax Obligations.

Failing to understand and fulfill tax obligations can result in penalties and fees. Consult with a tax professional to ensure compliance with local, state, and federal tax obligations.

Build a Habit of Reading.

Reading books is one of the best ways to increase financial literacy. It will help in understanding business terminologies and the ways to analyze your company. If you don’t like reading, listening to podcasts and attending financial literacy seminars are great options.

Leon Richardson is a financial advisor with Edward Jones, located in Hyde Park Chicago. He is passionate about helping people reach their financial goals and improving financial literacy within his community. He is a member of the Hyde Park Chamber of Commerce, the Near South Planning Board and service chairperson for the Chicago South Loop Rotary.

Connect with Leon https://www.edwardjones.com/us-en/financial-advisor/leon-richardson