Own Your Own Business? 3 Financial Skills Every Entrepreneur Needs To Learn And Develop

Posted by Anne Sheehan on Jun 28, 2017

Whether you have had your business for many years or just a few months, you won’t be able to deliver on your vision unless you understand the financial information that you need to be successful.

Learn three skills every entrepreneur needs to learn and master for success.On the surface, financial documents look like just a bunch of numbers. However, these reports are instrumental in propelling your vision. You don’t need to be an accountant. You just need to understand what your financials are telling you about your business.

1. Read And Understand Financial Statements

Which financial statements are essential for running your business, and how can they help you continue to deliver your vision? We have found that the profit-and-loss statements and balance sheets are most helpful after month-end close.

Year-over-year profit-and-loss statements tracks revenue growth and flags increased costs. Profit-and-loss statements track every dollar in your company, including:

  • Top-line revenue
  • Totals of all costs and expenses
  • Net income

You need your balance sheet to manage all liabilities (money that you owe) and to grow your assets, particularly cash and accounts receivable. Monthly balance sheets are a global view of your business value:

  • Assets - liquid assets, accounts receivable, fixed and other assets
  • Liabilities - accounts payable (your bills), credit card balances, loans and debt
  • Equity (assets minus liabilities)

2. Learn To Manage Cash Flow

We also use the cash flow report every two weeks, and daily reconciliations are distributed at the end of the day, every day.

Bi-weekly cash flow forecasts are one of your most important reports because they identify potential cash shortages. They give you time to pivot and solve potential cash shortage problems before they actually occur. They also identify cash surpluses, which are a much better number to have.

Bi-weekly cash flow forecasts map your:

  • Beginning bank balance
  • Plus accounts receivable
  • Minus accounts payable (your bills)
  • Net inflow (AR - AP)
  • Plus beginning bank balance
  • Equals projected bank balance

Daily reconciliations calculate your daily register balance:

  • Beginning bank balance
  • Plus cleared payments, deposits and credit
  • Minus uncleared transactions
  • New transactions
  • Your ending register balance

3. Manage Accounts Receivable With Signed Agreements

One of the most valuable actions you can take to ensure that you are paid on time and without question is to always have a signed agreement with every client. Agreements include your scope of work, responsibilities of the parties, expense and travel policies, payment terms, termination and other legal agreements.

The most important part of our agreement is Exhibit A, which identifies each commercial property tax service that we provide and the agreed-upon fee for that service. We also state when we invoice each fee and identify when payment is due. We offer payment options, including all credit cards and P-Cards, ACH, wire and check.

The only way to manage the revenue that you and your client have agreed to in the agreement is to create a process that is executed regularly. This prevents having past-due payments, which impact your cash.

Remember: Cash is king. If you don’t have revenue, you don’t have a company. Revenue is your top priority as a business owner, so you need to have a process that invoices clients as soon as the work is completed, tracks invoice due dates and tracks payments.

Here are suggestions to help make that happen:

  • Send a reminder to your clients two weeks before an invoice is due, or call their accounts payable department to make sure your invoice has been approved for payment. Find out when and how it will be paid.
  • If an invoice goes two days past due, get on the phone with your contact, so they can help you track your invoice.
  • Offer credit card payments. It is easier for the client, and you receive payment much faster. Avoid paper checks at all costs, as they add at least 10 days to actual receipt of funds.

Not all of us are comfortable reading and understanding financial statements. It takes time to understand how the different financial statements intertwine and to develop the ability to see things before they happen. For example, if there was a gap in accounts receivable, you need enough time to pivot and address the resulting cash crunch long before it becomes a problem.

Mastering your understanding of these financial documents is a critical skill set for you as the owner and visionary for your company.

Find out how commercial property taxes impact your bottom line. Download a free infographic now.

Are Commercial Property Taxes Hurting Your Bottom Line? Find Out What's At Stake (And How Much You Could Save). View Infographic

Property Taxes Gone Up? Act Fast To Appeal

Schedule a free consultation with a property tax expert