Who in their right mind would want to work 24 hours a day 7 days a week and worry about money? Entrepreneurs that’s who! It seems counter intuitive that someone would be prepared to work hard and still get anxious about money but the truth is that many small businesses do spend a lot of time dealing with money issues and challenges. This is for a variety of reasons with the main reason being a lack of knowledge about finance and it’s importance.
Many entrepreneurs and small businesses know their particular products or services very well. They are technical experts and most likely understand how to take their product or service and offer it to the market. Because feedback is immediate the ability to learn on the fly and course correct happens in real time. Finance on the other hand tends to happen in anything but real time. Payables, receivables, cheques outstanding that have not been cashed and many other variables make it tough to get handle in real time on the finances of a business. Because of this, many businesses look at their financial statements and reports at the end of cycle or period not during or before. The nature of finance for a business is always an “after the fact” event with very little in the way of proactive thinking, reporting and planning.
So what should a business do?
1. Learn what a balance sheet and income statement are. Learn how these financial statements work together to tell you what is happening in your business
2. Take your business plan and force yourself to prepare both an income statement AND balance sheet for the exercise
3. Learn the key ratios that you should know about your business so that in real time you can watch what is happening
There are many other good and prudent things to know and do with your business finances but the above is a great first step that can pave the way for many more.
“Formal education will make you a living; self-education will make you a fortune.” – Jim Rohn
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