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The Trusty Oak Blog

Are You a Financially Literate Entrepreneur?

October 26, 2020

When I say the word finance, what comes to mind for you? Maybe you picture calculators and enormous spreadsheets with big numbers, and maybe you start feeling a general sense of overwhelm right away.

Quickbooks did a survey of small business owners and found that over 40 percent said that they would consider themselves financially illiterate. Another 70 percent said that they wished they knew significantly more about the finances of their business. As a small business owner, you are an expert at your product and the day-to-day operations of your business, but you may not have time to spend on your business’s financial health. 

Often, this means you can’t take those big spreadsheets and make them meaningful because you don’t have the time or the resources. You may not have the experience to do so, and you are far from alone in that. Many business owners avoid finance because they're uncomfortable with it because they just don't have the experience. 

The problem is, without understanding your business finances, you’re flying blind. You aren’t sure how to make big purchase decisions and you’re in the dark about where your company is headed.

How can you reverse this for your business and get a handle on your company’s finances?

Related: How to Recession-Proof Your Small Business

Get Your Company a Financial Wellness Check

One of the first places to start if you don’t have a good level of financial awareness for your business is with what I like to call a “financial wellness check.” This is something we provide to Trusty Oak clients when we begin our Financial Strategy process. What we do is we take the baseline numbers from your company’s history and we begin to dig into the financial health of your business. We can assess your company’s financial health by answering questions like:

    • Is your company profitable? 
    • What is driving your revenue?
    • Is your revenue changing over time? Increasing? Decreasing?
    • Are your costs going up? Down? Remaining fixed? Are they projected to increase? 
    • What do all of these data points tell us about where the business will be in the future?
    • Is your company growing, shrinking, or plateaued? 
    • Is your company growing responsibly -- in other words, will you have enough cash on hand to meet your expenses over the next 12 months?

This process helps us assess the health of your company financially and point out strengths and weaknesses. Out of this health check up, we can begin to create a 12-month forecast -- this is your business owner crystal ball. We’ll forecast revenue and costs over the next 12 months and begin to see a picture emerge of where your company is headed. From there, you can begin to make powerful decisions to steer your company forward. 

Turn Your Numbers Into Narratives

After we’ve gathered your financial data, we can begin turning it into a meaningful narrative. You may not feel comfortable digging into your numbers, but you can turn to the experts and find people who are. Whether you teach yourself through free online tools or hire a financial strategist, you can get access to people who are experts at taking financial statements and translating those into a meaningful, usable narrative.

The truth is, if you know how to read them, numbers tell a story about your company. And it's a story that you don't want to miss out on because it's the story of your business--of where you've come from, where you are today, and where you're going in the future. It's also a story about why things have happened and one we can use to make better-informed business decisions. 

Turning your numbers into a narrative takes the grey out of the decision-making process and makes it a lot more black or white. It allows you to step back and see the trends of your company’s past, present, and forecasted future, and make better decisions moving forward. 

Learn more about Trusty Oak’s Financial Strategy service

Start Tracking and Measuring Yourself Against Your Goals

Once you’ve gotten a read on where your business currently stands and where it is headed, you can begin tracking yourself against your goals and measuring your progress. This is where financial literacy truly begins to make powerful changes in your business. 

At Trusty Oak, we provide a monthly action plan service to our financial strategy clients. This is a process large corporations use every month when they close their books, but many small business owners miss out on this. Essentially, this process takes your forecast -- all of those projections about revenue and costs -- and compares historical data from each month to the forecast. 

When there are variances, we can begin to see trends. As an entrepreneur, you can begin to see information you can use to make plans. For instance, you may start to see revenue declining or plateauing, and begin to make changes to your pricing and sales structure. Or you may begin to see growth on the horizon and start planning for large expenses like staffing costs and a new website. Whatever the case is, measuring your financial actuals against your goals will help you reach them. 

Start Making Better Business Decisions

Have you found yourself asking questions like these?

    • Should I invest in this new website or this new tool?
    • Should I take out a business loan? 
    • How should I price a new product or service?
    • Can I afford to bring on more staff or purchase a new building?
    • Am I controlling my costs?
    • I feel like I’m selling more, so why am I not more profitable?

Like it or not, there is a financial component to almost every business decision. It goes back to that idea of sussing out the story of your business. Part of that story is providing information that you need to make the best business decisions. The answer to all of these questions for your unique situations is in your company’s financial data. You just have to know where in those numbers to look. 

Reach a New Level of Financial Awareness

If you choose to begin investing in your company’s financial health, you're going to have a whole new level of financial awareness and a much clearer vision of what direction your business is heading. It’ll feel like putting on a pair of glasses for the first time and everything that used to be blurry becomes very clear.

You’ll begin to have better processes to keep you on track, to recognize when you're getting off track, and to make small corrections to get you back on your goals -- being proactive rather than reactive.

If it's not something that you've had before, you’ll be shocked at the impact that it will have at guiding your business decisions and at the value that it will create for your business. Financial literacy is another essential tool in your entrepreneur tool box, and we can help provide it to you. Large corporations have access to whole finance teams and consultants, but there’s no reason small business owners can’t have the same insight. We're bringing that same possibility to your business, scaled to meet your needs and to meet your budget. 

Learn About Our Financial Strategy Service

 

About the Author

Brian Madeley

Brian Madeley is a financial strategist with a passion for bringing data to life for business owners. After receiving his finance degree from the McCombs School of Business at the University of Texas and graduating with honors, Brian began his business career working as a financial and treasury analyst at Zale Corporation in Dallas for several years. He has also worked as a consultant and manager at a small health insurance company where he built a finance team, wrote and implemented financial and cash management processes, and managed the team prior to his return to United. Brian is also currently the CFO of a small residential real estate holding company as well as a pilot for United Airlines. Brian believes that small business leaders can unlock untapped potential in their businesses by gaining and utilizing a deeper understanding of finance and the role of financial systems in making informed decisions.

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