Allocate some quality time to becoming financially savvy, it will be worth it.
Don’t put your business at risk
One of the most disheartening things about business is having put your heart and soul into your business and you don’t see any financial rewards. If you’re in business, you must make a profit in order to survive. However, being financially savvy doesn’t come easily to everyone.
When learning new things, be it a language, a skill, or about finance, it can sometimes prove difficult and at times very challenging. For many learning about personal and business finance, the economy and money along with how it works and how to make it work harder for you can be daunting. This can be due to our lack of understanding or interest in the subjects.
Money should not be your top priority
Some people put finance before anything else, which has a number of flaws. While money is important, it doesn’t make you happy in fact is can be one of the most stressful things you have to deal with.
Blindly chasing money is usually not the answer, unless you are chasing up money that is owed to you. Money is actually a concept or a tool we use to exchange goods and services. If used well as a tool it can assist us to take the actions necessary to make more, if used badly it is no help at all and only causes stress and relationship breakdowns.
Living in the wake of one of the worst financial crises in the modern world has made discussing money matters important. But talking good finances and practising them are two very different things.
“Every organisation is built and run on a set of assumptions about markets, customers, competitors, value perception and so on. When those assumptions are in harmony with the external reality there are conditions for growth and success. When there is a mismatch, the seeds of crisis are sown”. Peter Drucker
What should you focus on
The things that make you money. Firstly you need to know about your products and services and the amounts you expect to sell, the amount you can produce, the customers you seek to serve and the people you need to make the business successful.
Secondly, you must understand these things before you can determine, with any degree of accuracy, the amount of working capital you will need to make the profit you want and need.
So, if you focus on these things, the things that actually make the money and you do it well, then the money usually follows. If you want to make even more, simply do more of the things that generate the money and do them better than anyone else.
Being financially savvy is a skill to be learned
Being financially savvy is a skill that can be taught. So, for starters here are some reasons why your business may not be producing the profit you want.
- If you can’t afford to pay yourself first, you can’t get things done. You are like a car run out of petrol, willing but you can’t get started.
- Your cash flow is up and down at best and non-existent at other times, customers are not paying you on time and this is causing a cash crisis.
- You don’t understand the need for working capital, or you use your bank balance to measure your success and wonder why there is no money.
- You don’t know what drives both you and your business and leave everything to chance; wishing and hoping.
- Your financial records are a mess and never up-to-date, you have little understanding of modern accounting systems.
- You don’t know how to do a budget that will work and anyhow, budgets are a little boring as you can’t predict the future.
- You have no score card, you are unable to see exactly what is going on and see what strategies and actions you need to change.
- You just want reports that give you the big picture, you don’t understand the detail and are not really interested in it anyway.
- You don’t keep the business in an Investor Ready status and wonder why you can’t get extra finance when you want it.
- You have no or a poor financial advisor. Financial advice can increase your sense of wellbeing and reduce your stress, just as a bonus.
- Spending too much time worrying about finance and not enough about what drives the business, both financial and non-financial.
- You aren’t sure if you’re charging enough for your products and services.
- You have little understanding of pricing structures or cost-volume relationships.
- You’re not sure what it costs you to open the doors to your business each day, you don’t know your breakeven point.
- You just accept what the ‘accountant’ tells you. without understanding and insisting on an explanation.
- You don’t know the difference between Cost of Goods Sold and Expenses.
- You don’t know how to crank up more sales if you have to improve the cash flow.
- You want to use a bookkeeper, but you don’t know what they should be doing.
- Your money is being misappropriated embezzled and you have no idea it is going on.
- You’re more a creative type than a numbers type and while you know you need to learn, you are being too busy being creative things.
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I always say to people who are not financially savvy, “just remember you are not the only one by a long shot”
No matter what stage of life you’re in right now, or what state your business is in, it’s never too late to become financially savvy. With business failures in the order of 80% in the first few years, it’s reasonable to think that a large number of people need to become more financially savvy.
More than half the adult Australian population believe they are financially savvy, however, one in three don’t have a budget or, know the return they’re receiving on their savings and only 17% know their superannuation balance, according to new research from the Suncorp Bank.
In business, your number one objective should be making sufficient profit. Unfortunately, few make the time and effort to ensure they have the right type of business to suit their purpose.
Their vision, objectives, strategies and actions to meet the financial aspirations they have are not clear and, are more often than not shrouded in a fog of self-doubt, fear and unrealistic expectations.