Business Finance Basics
Finance is the lifeblood of business, but for many small business owners, it is also their least favorite part of being an entrepreneur.
When TD Bank asked 500 small business owners to name their least favorite task, 46 percent said bookkeeping. Many entrepreneurs avoid this anxiety by putting off their finances, but this can return to haunt you.
In a CCH survey of 1,000 small- to medium-sized enterprise owners, 35 percent of those surveyed named insufficient time managing the books as a major contributor to business failure, and 49 percent identified insufficient capital as another key culprit.
Hiring a good accountant is part of the solution to this problem, but as a business owner, you’re ultimately responsible for your company’s finances. If you’re considering becoming a franchise owner, it’s in your best interests to educate yourself as much as possible about business finance. Here’s how:
Educational Resources
Fortunately, resources abound if you’re an entrepreneur seeking a business finance education. Forbes and The Princeton Review, provide rankings of the top business schools and most local community colleges offer basic business courses.
For an advanced understanding of specific subject areas, such as corporate credit rating analysis, Moody’s Analytics offers intensive short seminars. If you want some one-on-one guidance, SCORE connects entrepreneurs with mentors and provides online and local training resources. Online College provides a list of other open courses you can find online. The SBA and Investopedia feature extensive online training for small business owners.
If you’re looking for textbooks, Amazon’s best seller section includes a category for textbooks in different areas of business and finance.
Tax Planning
Tax planning is one of the most fundamental areas of finance you need to learn for the simple reason that it affects your choice of a business structure. This in turn affects your ability to open a business bank account and perform other essential setup tasks.
The IRS’ website provides an overview of what small business owners need to know about federal tax planning. Essentials covered include selecting a business structure, applying for an Employer Identification Number, determining which type of business tax you need to pay, choosing when to start your tax year, integrating your retirement planning into your business tax planning and keeping tax records.
Financial Planning
Financial planning has a bigger impact on your company’s success than any other area of business finance. Developing a successful financial plan involves creating and maintaining your key financials, which include your balance sheet, profit and loss statement, sales forecast, inventory schedule and cash flow statement. These should all be projected for at least your first three years of operation. Score’s website provides templates for these key financial statements along with the opportunity to share your statements with an experienced mentor.
Financing
Putting your financial plan into effect requires startup capital, making learning about financing another essential element of your success. Sources of financing include personal finances, family and friends, grants, loans, venture capitalists, angel investors and crowdfunding. Your ability to tap into these resources can be affected by your credit rating and by how persuasively you prepare your funding request. The SBA’s website provides a useful introduction to the major sources of business finance along with links to resources that can help you secure financing.
Bookkeeping and Accounting
Even if you plan to hire a professional accountant, which is recommended, learning the basics of bookkeeping and accounting is essential to understanding what’s going on with your business. Bookkeeping primarily involves recording your business’ transactions and financial activity. Accounting includes bookkeeping and also involves managing your bookkeeping policies and execution as well as analyzing your financial records and preparing financial statements and tax returns. The For Dummies website provides a 12-step introduction to the basics of bookkeeping and accounting.
Good financials increase the chances of selling your business
A strong and clean set of financial statements are probably the number one thing that will increase the chances of selling a business when that time comes.
What’s important to remember is that a strong and clean set of financial statements are not just put together overnight; it includes tax returns that are filed with the IRS and signed by the owner of the business each year.
If you follow the suggestions above it will make your business stronger and easier to manage as it will provide information to use on a regular basis so small changes can be made; rather than big reactive changes.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email Andrew Rogerson or give me a call on 916 570-2674.
