As a small business owner, if asked what keeps you awake nights, would the financial health of your business be at the top of your list?
Chances are when you started your business you did so because you were passionate about the products or services you would sell. You probably didn’t go into business because working with numbers excited you. Yet it’s often the numbers that cause sleepless nights.
If the finances of your business keep you awake, you aren’t alone and there is a cure.
The good news is you don’t have to be a CPA or accountant to understand your company’s financial health. As the book “Financial Intelligence for Entrepreneurs” points out, finance mostly involves simple math — the use of addition and subtraction.
The authors, Karen Berman and Joe Knight, go on to say that when finance people get really fancy, they multiply and divide. If you can do simple math and have a calculator, you can understand the finances of your small business and acquire financial intelligence — the cure for those sleepless nights.
What does it mean to have financial intelligence and what are the benefits?
It means you can read and understand the financial statements of your business. You know the difference between income and cash and understand that cash pays the bills and income does not.
Financially intelligent entrepreneurs know how to calculate the cash they will need, when they will need it and whether they can meet their financial obligations or maybe need to seek funding.
Understanding and using ratios is another sign of financial intelligence. Call me crazy, but I get excited about ratios and what they reveal about the financial health of a business.
Ratios can help you understand your company’s profitability, as well as identify financial strengths and improve cash flow, without changing sales or costs.
Ratios can measure how well you are managing your assets, what the ROI (return on investment) will be when buying new assets and whether or not you should proceed with the purchase.
So where do you start? What keeps you from taking that first step? If the fear of math is not what prevents you from understanding the finances of your business, what else might it be?
Financial Intelligence for Entrepreneurs points out it may be because your primary goal is to satisfy customers, help support your community or provide incredible service.
Profit isn’t your main objective.
As the authors note, running a profitable business ensures your business continues so you can keep satisfying customers, supporting your community and providing incredible service.
Profit is important.
In the absence of profit, can you meet your goals and support what is important to you? Acquiring financial intelligence will help you make informed decisions about your business, increase the likelihood of profitability and build a sustainable business.
If you are ready to put your basic math skills and calculator to work for your business, contact your local SBDC office. Our finance experts can help you acquire the financial intelligence you need to manage and grow your business and cure those sleepless nights.