As a small business owner, financial planning could always be on your to-do list. If not, October is Financial Planning Month, an excellent time right before the holidays to revisit budgets, manage savings, audit your spending, scope out financial projections, do an overall financial check-up or brush up on your financial literacy.
You may be wondering, what is financial literacy, and why it is essential for small business owners? Learning and understanding terms like bookkeeping, projections, checks and balances, payroll, and tools like Quickbooks and Microsoft Excel help you monitor and meet small business financial goals. These skills can help you manage, scale, and grow your small business finances. They can also further impact marketing decisions, including the products you sell, how you sell them, and when you offer sales or discounts each quarter.
Whether you are a pro, new to financial planning, or trying to polish up your skills, we provide entrepreneurs with free financial help and resources all year long. You can sign up for exclusive small business finance workshops in our Small Business Success Series: Free Workshops and Events for Entrepreneurs. If you have a specific need, see if you’re eligible to apply for a free 1:1 consultation with a finance volunteer to help you directly.
We also chatted with Ian McDermott, the senior financial program manager at Start Small Think Big, about the importance of financial literacy and how it benefits small business owners. Ian has been on the Start Small Think Big team for four years, and outside of his love for finance, he’s also in law school.
Keep reading for Ian’s Financial Planning Month insights.
What does financial literacy mean to you?
To me, finance can be considered a language of its own. But it’s a very learnable language for anyone. Just like an English class, there’s vocabulary, story structure (financial statements), and analysis to extract meaning from these stories.
The financial industry can use many phrases that make the rest of us think it’s something we can’t understand. Still, every component of economic language is a simple thing that we know already in different words. If someone can get a confident grasp of all those simple components, then even the most complex combinations can become understandable.
Why do entrepreneurs need financial literacy?
There are plenty of historical reasons for fear of “getting duped.” Entrepreneurs need financial literacy because this language is also used to pull insights, such as how people interact with one another and what they value.
By understanding your business’ finances, you can better understand what people are looking for and how you can best provide it. And that often involves the business owner at least making enough for themselves to keep the doors open, dedicate their time to the business, and have enough quality of life outside to enjoy running the business.
How does financial literacy support generational wealth?
There are plenty of people who are lucky and fall into riches and generational wealth. If there were a formula for finding that luck, I’d gladly share it. Instead, we have formulas to tell us when a business isn’t making enough money.
It’s a piece of the puzzle, but the reality is that financial literacy is not going to turn an unwanted product into a wanted one. Nor will it give your customers more money to spend on your business. However, it can tell you when to stop trying to sell that product. It’ll make all those decisions more manageable and allow you to be more confident you made the right decision because you based it on the numbers.
What resources do you share with clients?
There are endless resources out there. Entrepreneurship is a trendy topic. However, you can easily spend all of your time consuming entrepreneurship education and never actually move forward on anything. Step number one is to figure out what step number two is [asking yourself],”What do I need?”. Then you can do a web search, visit your local library, local business support office, small business support nonprofits, and so on. At each step, you need to identify specifics of what you will focus on. Don’t get overwhelmed by the endless resources—one thing at a time.
Is there any other information you want to share with the SBO community?
Hold yourself accountable. Identify that next step, set a timeline, and then review your progress at the end of that timeline so you can decide whether you need to make changes or should keep on the path.
The responses reflect the person's perspective