What makes the difference between a healthy, profitable business and one that just scrapes by? One major factor is the financial literacy level of decision makers. The more you know about the flow of money through your business, the more likely that your enterprise will thrive into the future.

Consider the following as jumping off points into greater fluency when it comes to your finances.

Keep your business and personal finances separate

There are a few really good reasons for this. By keeping your two financial worlds separate, you limit potential legal impacts on your personal assets.

Disentangling business and personal deductions will make tax time faster and easier- and will increase your profitability.  If you’re working with a CPA on your taxes and paying them an hourly rate you want it to go as quickly as possible. Taking the time to figure out if that lunch receipt was from a client appointment or on personal time can be a nightmare.

Many small business owners simply use a separate credit card and bank accounts for business and personal expenses. Familiarize yourself with the intricacies of the what’s considered a business expense and what’s not- a bit of education in this area can go a long way toward helping you keep your profits.

Financial literacy means budgeting

To make this thing work, you have to know what’s coming and what’s going out as closely as possible to the actual dollar amount. Planning for the future without a budget is like driving down the freeway blindfolded. You may not only miss the on-ramp to greater opportunity, but you could actually cause serious damage by not seeing what’s in front of you.

Don’t allow your business to be nickel-and-dimed to death. The boundaries set by your budget should help you say no to small unplanned expenditures.

There are PLENTY of resources out there to help you with a business budget, from digital apps like QuickBooks or Centage to spreadsheet templates you can use in MS Office or Google Sheets.

It will benefit your business if you are acquainted with some bookkeeping basics about accounting principles. Cash vs accrual accounting is one choice you’ll have to make along the way so be prepared!

Create standard operating procedures for recordkeeping

We know there are a thousand other things vying for your every minute as a small business owner or entrepreneur. Once your business starts to grow, you MUST establish good financial habits or you’ll end up regretting it later. One of these habits is standard procedures for all your processes and especially financial recordkeeping.

Make this one of the first standard operating procedures you install: An annual detailed study of your financials. Look for the month over month trends. Compare expenditures and profits year over year. It’s not enough to simply know where your money is going, you must know why it’s going out in order to make good decisions going forward.

Understanding debt and use it wisely

Debt can actually be of tremendous benefit to a small business, not only in building financial credit as you pay it back over time, but you can use it increase your profits in a controlled, responsible way.

Shop around. Compare fees, terms, interest rates, and whatever might be included in a loan package. And don’t assume you won’t qualify for that excellent interest rate- there’s no harm in applying!

Speaking of fees and interest rates, add a review of your debt cost to that annual review mentioned above. Borrowing money is never free, but see if you can keep the cost of debt to a minimum. It may be worth the time to consider refinancing or paying off some debt to keep your profitability on track.

Get a really good handle on your current financial reality and future contingencies. Have a precise justification for borrowing and a plan for a payoff. Know where you’ll make cutbacks if needed. You may find that you don’t actually need to borrow as much as you thought as you study your current financial terrain.

Ammie’s Assignment: When is the last time you reviewed your financials for trend analysis?  If it’s been awhile or the answer was never, it’s time to block some time in your schedule to understand where your money is going and WHY.


If you enjoyed reading this article, would you mind spreading the love and share it on your social media?