To run a successful small business, you need to understand and properly manage your business’s finances. Fortunately, you don’t have to be a finance expert to be financially literate or grow a successful business. Instead, you just need a little direction and some accessible skills to get you on the right financial path.
In honor of Financial Literacy Month, we’re showing you five simple financial skills you should have as a business owner and how to master them.
Five must-have financial skills for small business owners
Running a business comes with many responsibilities and often requires you to learn brand new skills, especially when it comes to financial management. If you’re not sure where to begin, here are five financial skills and habits to master now:
1. Understanding financial statements
First, you want to stay up-to-date on your business’s financial health by regularly updating, reading, and understanding key financial statements.
As you likely already know, there are a plethora of financial metrics to track in business. To prevent getting overwhelmed, prioritize your balance sheet, income statement, and cash flow statement first. Here’s how they differ and why they’re so important:
- Balance sheet: A measure of your assets, liabilities, and equity, your balance sheet can help you forecast, show business lenders your financial health, and more.
- Income statement: Also known as a profit and loss statement, your income statement shows your income, expenses, and profits. It gives you a sense of your business’s ability to make profits.
- Cash flow statement: A report of all cash received and spent over a period of time that helps determine whether or not you can pay bills, process payroll, and more.
2. Bookkeeping
To understand your balance sheet, income statement, and cash flow statement, you need to build and maintain them first. That’s where bookkeeping comes in.
By definition, bookkeeping refers to the ongoing recording of your daily business transactions. You can do this manually through spreadsheets, use a third-party bookkeeping platform like Bench or Quickbooks Online, or hire a bookkeeper.
Bookkeeping will give you a snapshot of your business’s financial health, allow you to strategize and forecast for the future, analyze spending and set a budget, identify high-growth opportunities, improve tax prep, and help manage through any IRS audits or questions you might encounter.
3. Budgeting
Where you spend your money and how much you spend on a given expense or in a certain time period — has a direct impact on your cash flow, profits, and business longevity. So it goes without saying that you need to budget.
When you set smart spending limits for your business, you’ll be able to plan better now and for the future. Take a look at your current spending habits to see if you can cut back anywhere, either by canceling unused subscriptions, negotiating better rates with suppliers and vendors, or finding less expensive alternatives for regularly-used services.
4. Invoicing
Getting paid is a must in business. Many business owners have customers, clients, or vendors that need to be billed for services, which is why you need a solid invoicing strategy — one that ensures you get paid on time, allows you to track late payments, and sends automatic payment reminders. Use an online invoicing platform like Wave, Bill.com, or QuickBooks Online to get started.
Speaking of payments, if you want to streamline how your business pays invoices, Bluevine lets you set up one-time and recurring online payments, use flexible payment methods (including credit cards), and more.
5. Building business credit
As your business grows and needs things like financing or real estate, you’ll learn that you need strong business credit.
Business credit is a measure of your business’s ability to pay its debts and is used by business lenders to assess risk. There are a variety of ways to build business credit:
- Keep business and personal finances separate. Open a separate business bank account and pay all expenses with your business income and business credit cards. This will make tax prep much easier since you won’t have to manually sort and separate business expenses from personal expenses — plus, you’ll avoid inaccurate tax filings and have added liability protection. You can also make your money work harder for you with accounts like Bluevine Business Checking, which offers eligible customers the opportunity to earn high-yield interest on operating balances.
- Incorporate your business. Forming a corporation — like a C-corp, S-corp, or LLC — will help you legally establish your business and separate your business assets from you, the owner. You’ll also have an easier time getting a business checking account since many business bank accounts require you to have a business tax ID number.
- Be smart with your debt. Using a business credit card or line of credit is one of the fastest and easiest ways to build business credit. Of course, you want to make sure you can meet your repayment obligations. If you pay your balance in full and on time every month, you’ll avoid compounding interest, late fees, and/or dings to your credit profile.
- Regularly monitor your business credit score. Curious what your business credit score actually is? You can find your business credit reports from Dun & Bradstreet, Experian, and Equifax. We recommend checking your profiles at least once a month to make sure there aren’t any red flags or inaccuracies.
More financial literacy resources for business owners
To help you develop these skills and gain confidence in all things business finance, consider listening to business podcasts, reading finance books or newspapers, or even getting a mentor with business finance experience. SCORE.org offers free small business mentoring from former business executives, so you might be able to find a former CFO or bookkeeper to learn from.
At Bluevine, we are dedicated to helping small businesses optimize their financial health. With a business checking account that offers the flexibility and transparency business owners look for in a banking partner, you can streamline cash flow management and more effectively grow your business.
