It goes without saying that finances are an essential part of any business. In fact, they’re pretty much the only reason why businesses exist. Keeping your finances in order is essential if you want to keep your company afloat, and there are several ways that you can do that. As we outlined in a previous article ‘7 Basic Tips to Start an Online Business From Home’, sometimes the simplest and most effective method is to hire an accountant. Before you reach that point, however, it’s important to have some financial knowledge of your own. Below, we’ve put together a quick overview of 3 financial skills you’ll need to start a business.
Organizing Financial Statements
One of the most essential parts of putting together a business is understanding the terminology. At the end of the day, businesses are all about paperwork. (Mostly digital in today’s world.) Keeping that paperwork organized is foundational to a good business. It’s also one of the things that lenders or investors will want to look at.
The Balance lists several types of financial statements that are especially important if you’re planning to pitch to a funder. Among others, these financial statements are:
- Budget or cash flow statement
- Costs worksheet
- Projected profit and loss statement
- Projected balance sheet
Budgeting
As AskMoney explains in an overview on balancing budgets, knowing where your money is going can help you prepare for the future. It also can keep unfortunate surprises to a minimum. Balancing a budget might seem like more trouble than it’s worth. But it’s absolutely essential if you want to be able to keep your finances in line and scale up your business in the future.
Understanding the reasoning behind budgeting is one thing, but executing it is another. Proper planning for your budget is essential if you have plans to start a small business, and maintaining that is just as important. Inc. describes a budget as a roadmap for your company. This roadmap should include revenues, costs, and profits, so you can figure out what needs investing in, and if that investing is possible.
Budgets don’t have to be static, either. The more you learn from your budgeting, the better you’ll be able to adjust. Don’t be afraid to go back and readjust estimates so you can meet targets— your budget is supposed to work for you, not the other way around.
Building Credit
Good credit is crucial if you’re planning to start a small business, and understanding the ins and outs of it is the best way to help your business grow. Business credit is what lenders look at in order to determine whether your business is worth the risk lending to. Without it, investors don’t have assurance that you’ll be able to pay back their investments as promised.
Entrepreneur has three tips for small business owners on understanding and building credit. The first is to understand credit’s use as a tool, and to make sure you’re making the most of it. That means paying consistently and on time, and building your credit from there.
Second is to take advantage of credit rewards. Entrepreneurs can use these rewards to help subsidize business expenses and earn revenue, as well as build up more and better credit for future use. Finally, entrepreneurs should have a good understanding of credit financing options. These include low-interest rate capital, and even zero-interest options for credit and loans.
Maximizing these options can not only lessen the financial burden on you as a business owner, but actually help you expand faster and more effectively. Building credit, along with organizing financial statements and budgeting, are 3 financial skills to start a business that are important to your success. Best of luck!