When starting a small business, it's easy to get caught up in the day-to-day operations. In many cases a small business owner starts something up without really considering the financial situation. Some business owners even make their personal finances secondary to trying to get the business off the ground. However, as Financial Literacy Month continues, it's important for a small business owner to stop and think about his or her own level of financial literacy.
How Financial Literacy Helps Business Owners
Because business owners are in it, presumably, for the money, it makes sense to understand how money works. Financial literacy isn't only about knowing where the money comes from and where it goes. It's about understanding how money works, and being able to see how to spend money to make money, and knowing how your decisions are likely to affect profitability.
Additionally, financial literacy for business owners is important since it helps them make better choices about what to do next. Whether it's hiring a new employee, or deciding on the right advertising medium, it's a good idea for business owners to understand basic finances. Financial literacy also helps you understand how to secure your future, and how to use the earnings from your business to enhance your personal life — including your retirement.
Financial Issues Small Business Owners Should Consider
There are numerous financial items that small business owners should be concerned with. However, some of the most important points of financial education include:
- Taxes: One of the important things to understand is the tax situation. Are you paying yourself a salary? How will it be taxed? Do you need to pay self-employment tax? Also, be aware that you need to pay quarterly taxes, including your portion of payroll taxes for your employees.
- Cash Flow: Do you know how money moves through your business? Know when you expect income, and when bills are due. You should match up your income to when you owe money, as best you can. It's also important to know when your employees are paid, and to consider setting aside surplus some months to help with lean months.
- Succession: Another aspect of financial literacy that business owners should understand is that of business succession. What will happen to your business when you are ready to retire? You need to have the financial education that allows you to plan out what you want the next phase of your company to look like, as well as the knowledge to implement that plan.
These are just some of the issues that small business owners should understand. While it's true that the right accountant can be helpful when it comes to managing your finances and making sure everything is done properly, it's still important for you to have an understanding of how your business works in relation to money. You need to be educated about finances so that you can find more effective solutions to problems, and better manage your own personal finances so that you are ready for the future.