1. Prioritize Succession Planning.
An important part of running your business is also having a succession or contingency plan if something happens to you or your partner(s). Sitting down with a Certified Financial Planner (CFP®) can help you address these gaps in your business plan. At the same time, you can take advantage of working with a CFP to ask questions and become more financially literate.
2. Curate a financial advisory team.
Develop a team made up of a CPA, an attorney (business and/or trust and estate), a life insurance advisor, a P&C advisor and an investment advisor. Meet with the entire team at least once a year to make sure everyone understands the master plan, and that the team is completely coordinated and transparent.
3. Focus on your cash flow statement.
The cash flow statement is the lifeblood of any business. It shows where the money is coming from, where it is going and how much. Some of the brightest business people I’ve met do not understand debits, credits, and basic
accounting. However, when they discuss their business’s performance, they nearly all describe a cash flow statement in layman’s terms.
4. Ask your accountant questions.
Accountants often provide reports and statements with the assumption that business owners understand the intricate details of how these reports are compiled. They are terrific resources for business owners to get one-on-one training and advice. Don’t be afraid to spend time with your accountant and ask as many questions as possible.
5. Track your accounts in real time.
Too many business owners focus on getting their books in order once a year when tax season comes. Today’s accounting software, such as Quickbooks, makes it easy to sync banking transactions in real time, taking much of the drudgery out of keeping accurate records. Make use of the wide assortment of reporting options available to provide accurate snapshots of your business’s financials.
6. Connect with a local CFO firm.
CPAs are super helpful but remember they are the auditors and tax people. Instead, CFO firms have accountants, controllers, and CFOs who run accounting for companies and explain the meaning of the financials for business owners. Strike up a relationship with a CFO firm, as they’ll share how they can help you, but they’ll also educate you a lot along the way.
7. Compare financials with peers.
Business owners can vastly improve their financial literacy by comparing their financials with those of a respected peer business owner in their industry. Few things are more valuable than learning from a successful peer or group of peers. Comparing financials is a great way to do this.
8. Don’t let your CPA gloss over complicated financial details.
Many business owners rely on CPAs for financials. CPAs have tons of specific, nuanced knowledge, and when asked to explain a figure, some may try to shield you from the gory details with, “It’s complicated.” When you review the numbers with them, ask them to explain it to you as they would to a fifth grader. Do this for a year, and you’ll be amazed at how well you understand.
9. Use data aggregation apps.
Use a free data aggregation app that lets you understand where your financial health stands (cash flow, credit, etc.). Small business owners have unique needs, so use an app specifically designed for small business. The good ones have struck a nice balance between using AI to make recommendations and educational context, so you can make smarter decisions and learn along the way.
10. Take a basic accounting course.
Establishing
a firm understanding of accounting will support financial literacy. This will
empower the business owner to effectively interpret their financial statements
and take action accordingly. No need to sit for the CPA exam;
rather, simply enroll in a beginner/intermediate accounting course. As a bonus,
these efforts will aid in establishing internal controls for the business.
11. Review financial statements monthly.
Sit down with an accountant or CPA each month to review your statements. Ask why certain expenses are categorized the way they are, why certain expenses don’t show up on the profit and loss statement but rather the balance sheet, and to explain the balance sheet in more detail. Last, discuss the difference in reporting of the financial statements with cash versus accrual accounting methods.
Raul Chico – President at Trinity
Management Partners LLC.