April is Financial Literacy Month, and while we typically associate financial literacy with imparting money management skills to teenagers and young people, small business owners can also benefit greatly.
Intuit’s survey of small business owners found that 40% of them believe they are financially illiterate. At the same time, 81% of them manage the money for their companies themselves. This indicates that a sizable proportion of small company owners are managing their own finances but lack the necessary skills to do so.
Accounting undoubtedly isn’t your strongest skill unless you’ve started a business providing financial services. But knowing your business’s finances—including cash flow, budget projections, profit, loss, etc.—is crucial to gauging its general health. Due to this, every company owner should prioritize continuing their education by becoming financially literate.
Many new company owners believe that record keeping consists only of writing checks and making deposits, according to Bruce Berndt, managing partner of Berndt CPA in Madison. Most people do not fully grasp the issue of completely separating business and personal finances, and as a result, do not do it. According to Berndt, the top five financial errors he frequently observes small company owners making are as follows:
- Making an effort to do everything: Most of the time, people don’t start by looking for the right group of advisers until they encounter issues.
- Lack of knowledge of money matters and legal requirements: There are so many, and knowing how to obey is simpler than figuring out how to solve issues. Spreading too thin: Search for lifelines to enter the market more quickly and correctly.
- not controlling danger This is a risk for both your company and yourself, and it’s not just one that can be covered by insurance.
- Making the family’s objectives (and sacrifices) agreeable “I would estimate that more than 50% of the potential new business owners I speak with do not thoroughly explore whether a business fits with the family quality of life or risk profile.”
- Berndt claims that failing to fully comprehend the financial risks that having a company has on all personal assets is the single worst financial error a small business owner can make. This is not at all the case. If they create a business strategy, they will be compelled to comprehend this and deal with [it] as soon as possible.
Berndt advises brand-new small company owners to completely segregate all banking and credit card transactions between personal and business. Although most people want to wait because it requires a lot of time, this should begin on day one.
Berndt notes that small company owners should surround themselves with excellent bankers, insurance professionals, and legal counsel because they cannot be expected to be financial experts. A company owner can attend a variety of excellent one-day seminars at the UW Small Business Development Center.
Look for presentations from local chambers of commerce or trade organizations. And meet with [your bankers] quarterly to discuss your goals and thoughts, Berndt continues. These gatherings are free, and the only cost is your time. This aids company owners in understanding how to finance expansion. Small business owners can improve their skills by utilizing a variety of other free financial literacy tools. To name a few:
Money Savvy for Small Businesses from FDIC
The Federal Deposit Insurance Corp. (FDIC) developed FDIC Money Smart as a comprehensive financial education program to aid those with poor and moderate incomes in developing their financial literacy. 13 training modules make up the program, which covers almost every aspect of small company finance. Business banking, insurance, credit reporting, tax planning, and financial flow management are some of the topics covered. The training materials are available for free download on the FDIC website for program participants.
A nonprofit group called SCORE offers advice, education, and mentorship to entrepreneurs and aspiring small business owners. The SCORE website offers online resources and information on a variety of subjects related to starting and operating a small company. On the website, there are writings and resources on money, finances, and financial planning. The Madison SCORE chapter also provides nearby mentors and seminars.