It’s Financial Literacy Month, and there’s no better time to think about getting financially savvy as an entrepreneur. Financial literacy is an important skill to have when you’re running a business; however, many entrepreneurs have had little to no education about business finance. This isn’t such a surprise – we know that our young entrepreneurs are more often motivated by a passion for their businesses than with a love of crunching numbers. After all – the real number lovers become CFOs and CPAs!
Even so, we need to overcome this gap in young entrepreneurs’ financial acumen because it’s critically important to long-term business success. Many businesses built on passion and great ideas still fail to survive past the five-year mark, and there are plenty of other hurdles to overcome – regulations, competitors, staffing challenges and many more. Ensuring that every young entrepreneur we work with enters the market with an adequate understanding of cash flow and overall financial management is our bread and butter.
To this end, we have developed a lot of great resources for our “Futurpreneurs”, and many of these are available to the public in our online Business Resource Centre (BRC). The following are the top five things you should know (and where to find them!) to be a financially literate entrepreneur.
How your personal financial health will affect your business
Many young entrepreneurs want to try to separate their own finances from those of their business, but that’s not realistic. Your personal financial situation will have an impact on the amount of financing you can get and the parameters around borrowing that money. Furthermore, if you don’t have a basic understanding of how to manage a budget and monitor your personal cash flow, you will struggle to apply this to your business. Get your personal financial situation and debt under control and make sure you know your numbers before you start. That will put you in the best position to properly manage your start-up capital and ensure the financial health of your business.
How you’ll finance your new business
Once you have a strong business plan, it’s important to understand the financing options available to you, and how to best manage your start-up capital. There are a variety of different funding sources for start-ups, and you should investigate each one and weigh the pros and cons based on your individual situation. Money is hard to come by for most young entrepreneurs, so you want to ensure you’re managing it well. We offer a crash course on how to get the most for each start-up dollar you have.
How to manage your cash flow
Do the words “cash flow” make you break into a cold sweat? You’re not alone – many entrepreneurs avoid this task like it’s their job for a variety of reasons. Yet, if there’s one thing you need to get your mind around as an entrepreneur to really effect the sustainability of your business, this is it. So let’s simplify it. Cash flow is just another word for budgeting, which is something everyone needs to do well in order to maintain their financial health. Your business is no different, so we’ve created an entire section on our BRC dedicated to tackling this dreaded task. Our template and crash course are great tools to get you started, as is this article from the Business Development Bank of Canada with tips for building your cash flow.
How to maximize your tax benefits
Tax time is a make it or break it scenario for small businesses. Errors can cost you big, and not understanding the available benefits means missed opportunities for major savings. This article from the Globe and Mail has some great tips on what you need to do to protect yourself at tax time, and to ensure that you’re taking full advantage of every benefit.
Financial literacy is a skill we can all learn. If you plan on starting a business, this skill set will ensure you start on the right foot and stay in the game.
Dominik Loncar is an Entrepreneur-in-Residence at Futurpreneur Canada in Toronto, who helps aspiring young entrepreneurs prepare to launch or buy a business.