Financial Literacy Is Key to Small Business Success: Here’s How to Improve Yours
You’ve decided to go into business for yourself. You’re so excited about your great idea, you’re full of enthusiasm and passion and you’ll do whatever it takes to get it up and running. I’m excited for you too. But I’m scared for you as well. Because the failure rate of new businesses is so high and I don’t want you to be one of those statistics.
I know you know all about what you’re selling or the services you’re providing, but what do you know about the other facets of business; areas like the numbers, sales and marketing, legal and employment issues and so on? Each area is fundamental for every business and although not all will be essential to understand in the start-up phase of the business, the numbers is one area that is.
Pre Start-Up Numbers
Before you even started your business, you should have undertaken a rigorous review of the numbers to get the business started. But if you didn’t and you’ve already started, I would suggest you identify these numbers now.
- the costs to set up the business
- the ongoing monthly business costs
- your personal living costs
- how much money you have available to invest into the business
- how much you will sell your products or services for
- how many sales do you need to cover your monthly business and personal living costs?
These numbers will tell you whether you have sufficient resources to get the business up and running or whether you will need to find other sources of income to pay the bills in the early days whilst you build up the business.
Once you’ve started in business, understanding basic financial reports is an area of knowledge that is important to have early on. Ask for assistance from an accountant or start-up advisor to help you prepare a basic budget and cashflow projection and seek out sources for basic financial literacy training.
Learn answers to questions like:
- what’s the difference between gross profit and net profit?
- how to calculate your selling prices
- what is the gross margin you’re making on each product or service?
- what is a profit and loss statement and why is it different to a balance sheet?
- the interaction between sales and accounts receivable and why getting paid up-front is essential for start-up businesses
- when you need to be registered for GST and how to make sure you have the money to pay this when it falls due on a quarterly basis
It is by knowing your numbers that you can focus on them. For example, when you know that you need $x of sales every month to cover your costs, you can keep an eye on how you’re going during the month. It never ceases to amaze me how when we set goals and targets, more often than not we achieve them. Focus on a few key numbers in the business and you will improve your results.
If you don’t know your numbers, now’s the time to find out more about them and in doing so your start-up business will stand a much better chance of being the successful business that you deserve.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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