Congratulations! You’ve decided to become an entrepreneur and small business owner. While it is an exciting period for you, it’s not without a few caveats. Entrepreneurs succeed and fail every day. However, there are steps you can take to ensure you’re one of the ones succeeding in today’s economic climate. How? Financial literacy.
Being financially literate better ensures your business’s success because you understand the company’s finances inside and out. What are the essential financial literacy concepts that every entrepreneur must understand to grow a successful business?
What Is Financial Literacy?
So, what is Financial Literacy for Entrepreneurs? Well, Financial literacy refers to one’s ability to understand financial concepts and handle these matters accordingly. It goes beyond budgeting and into the realms of cash flow management, financial statements, and investment and risk management. To be financially literate, an entrepreneur should know these key concepts that keep their business afloat. So, where should you start on your financial literacy journey? To start, let’s discuss the three main components that make up financial literacy.
Financial Statement Understanding:
The key to being a savvy entrepreneur is understanding the important documents that relate to the income and expenses of the business. These often take the form of a balance sheet, cash flow statement, and income statement. Between the three of these, the best financial decision-making can be made, and a road map can be laid out to project where the business is going. Understanding the basics of your business’s finances becomes the groundwork for your financial literacy.
Budgeting:
Budgeting is the key to being a successful business owner. It’s a dangerous game to spend finances you don’t have, and even scarier to not capitalize on what you do. Planning and allocating for expected costs, predicting expected economic and profit fluctuations, and adjusting based on business needs are key skills that all entrepreneurs should learn. Frequent budget reviews help businesses adhere to the allotted amounts and be prepared for the fiscal year. Review your business’s budget as little or as often as you see fit, but do it at least once per quarter at the very minimum to ensure there’s a safety net for unexpected economic shifts.
Insurance and Risk Management:
On D-Day, General George S. Patton wrote, “Take calculated risks. That is quite different from being rash.” While he was writing to his son about history’s great military battles, this is the kind of mentality entrepreneurs need to embrace. Risk is unavoidable. Life happens and often occurs in unexpected moments. So, what can you do to best prepare? That’s where business insurance comes in. There are many kinds of insurance to consider when starting your business, and not every type may be essential for you to have as you start. General liability insurance, for example, will protect you from being sued by those outside of your company. It’s comprehensive and can protect you from different lawsuit claims depending on the situation. Different insurances to consider when starting your business include:
- General liability
- Professional liability
- Workers’ compensation
- Employment practices liability
- Commercial property
- Commercial auto
- Commercial umbrella
- Business income
- Product liability
- Cyber liability
Sometimes these insurances can come in the form of a business owner’s policy, where basic coverage can be combined into one neat insurance package. Insurance can be difficult to navigate and varies widely depending on the needs of your company. Talk with a consultant to determine what options are best for you to mitigate risk to the best of your ability.
It’s ok to not be financially literate overnight. But beginning that journey doesn’t need to be stressful. Being aware and having financial literacy as an entrepreneur, like understanding your statements, profit margins, and risk management, is the key to a strong foundation. This foundation can only benefit you and your business in long-term capacities, financial health, and future decision-making. Even then, a second opinion never hurts! Schedule a free 15-minute consultation with one of our DCG advisors here to discuss other steps you can take to become financially literate this year!Â
