How to Be the Best Financial Leader for Your Small Business Success
One thing is true for all companies, regardless of how big or small: Finance is the heart of all businesses. Love may make the world go-’round, but money makes the business world go-‘round.
As a small business owner, you are ultimately responsible for all financial aspects of your company. You may feel financial responsibility intimidating, especially if you don’t have a background in accounting or finance. Your passion for your product or service can fuel your small business’s operations and marketing. But accounting and finance aren’t necessarily as intuitive.
Strong business leaders are skilled in operations and sales and have a good grasp of where their companies stand financially. What traits do great financial leaders have that you should develop for your small business?
Be Prepared for Real-Time Financial Decision-Making – Know Your Numbers
Using accounting services for tax and payroll is a great idea. Still, there are excellent reasons not to outsource too early in your startup. It’s difficult to make financial decisions when you can’t readily access financial information. As a small business owner, deciding how best to use your money to grow a successful business should be your top priority.
All business owners should understand what drives their costs. Reviewing costs should be done frequently so you can stay on top of your spending. The more involved you are with your spending, the quicker you can identify any potential savings and take steps to make necessary changes.
CB Insights performed a study to determine the reasons why startup businesses fail. The number one reason was poor cash management. You must learn finance fundamentals to help you make informed, intelligent financial decisions. Companies have to budget and plan to track how they are progressing in their business journey.
Learn How to Read Your Financial Statements
You won’t be able to grow revenues or profits if you don’t understand what they are. Learning how to read your financial statements is critical in helping you make more informed decisions.
It isn’t unusual that some small business owners lack the skills to interpret financial statements. Studies have shown only one in four small business owners have good financial literacy. While various financial statements exist, most small businesses should understand income statements and balance sheets.
Income Statement. An income statement will show you all your revenue and expenses for a specific period, usually monthly, quarterly, or annually. Revenues will be at the top of the statement, with expenses deducted under the revenues. Typical expense categories include cost of goods sold, payroll, supplies, marketing, and advertising. After deducting costs from revenues, any remaining money will be your net profit or income.
Balance Sheets. The balance sheet for your company will show a list of your assets, liabilities, and equity. Your assets include items your business owns, such as cash and equipment. Your liabilities are items you owe, accounts payable, or loans payable. The equity portion of the balance sheet is the accumulated amount of your investment in your company.
Reviewing financial statements frequently will help you measure your business success and allow you to spot good and bad trends.
Grow Your Business by Following Best Practices
Of course you want to stay competitive in your small business. Research the best practices for your specific industry and adapt them to your needs. Every industry has commonly used Key Performance Indicators that are helpful when tracking business growth.
This advice doesn’t mean blindly doing what other companies in your industry do. It means you learn why other companies follow specific standards and determine if those actions are the right choices for your company. Often entrepreneurs don’t consciously think about why they do certain things until after the fact. Put thought into your actions and make deliberate decisions.
Stay on top of trends in your industry, so you are prepared to change and adapt to keep your company competitive.
Do You Need Help?
Still not comfortable looking at your finances on your own? Contact [email protected] today and let’s dig into your numbers together!