What do you think is more important in business – sales or profit? It’s a trick question because, without sales, there would be no profit in a business. However, without consistent profit in a company, there would be no business.
As a business owner, there are many hats you need to wear, including the hat of a financial person.
You do not need to be an accountant, you do not need to do your bookkeeping, but if you are the CEO of your business, you need a high-level understanding of your business finances.
You can hire experts to advise you, but if you do not have basic financial literacy in your business, you will not understand the decisions you are making in your business. The impact of those decisions you make affects the bottom line, which is the profit.
Here are ways you can increase your business financial literacy skills:
1. Understand the income statement
The income statement is the most used financial report in business. You can create your budget from the income statement, your operating forecast and measure your key performance indicators all from the income statement. When you understand how to interpret the numbers from the income statement, you will be clear on how your business decisions affect the profitability of your business.
2. Create a financial plan
When you create a 12-month forecast, you create a plan for your business, you give your business direction and actionable steps that your business will take to achieve the company’s financial goals.
3. Monitor your progress against that financial plan
When you have a financial plan established, you need to monitor your progress against that plan each month. This allows you to spot variances from your plan and understand what got in the way of achieving your goals. Conversely, if the variances are favourable, you know what is going well and continue to follow that path.
4. Use a cash management system
Cash management and preventing cash shortages is a crucial activity to protecting your business from financial ruin. You need to forecast your cash flow activity six weeks or more in advance and ensure that you keep cash reserves to help you get through more challenging financial times.
5. Monitor outstanding accounts receivable
Do not be afraid to follow up on late payments. Too often, people let their collectibles go stale, and it is much harder to collect older payments than it is to keep current. Monitoring the outstanding accounts receivable in your business and early collection helps with cash flow activities.
6. Plan for taxes
Tax planning is a crucial tip as many business owners fail to put aside taxes owed on the profit they make in their business and get hit with a high tax bill at tax time. Paying taxes is part of the business, so plan for your tax payments and avoid surprises.
The bottom line is that the best way to kill any CEO imposter syndrome you may be feeling is to know your business numbers. When you have someone who guides you along the path and teaches you what you need to know to keep your business generating profit, you are securing the financial future for your business. Never give your financial power away.