Operating a successful business requires entrepreneurs to have financial literacy. These individuals know that capital and free cash flow will help their businesses grow.
The habits of highly successful people always include financial traits.
If you want to run a business that continues to grow and thrive, you need to build the five financial habits listed below.
First and foremost, if you cannot create a budget and stick to it, you’ll run out of capital. Entrepreneurs are risk-takers who have a vision for a new product or service that meets an industry demand and pain point.
However, 44% of startups fail because they run out of cash.
If you want to have a chance of success in business, it’s crucial that you:
Creating a budget is a time-consuming process, but it’s one of the first things that you should be doing before “opening your doors.” You can follow the steps below to create your first budget:
Creating a budget sheds light on the potential for your business to succeed. If you have expenses that far exceed revenue, you’ll need to find ways to lower costs. One of the first attempts at lowering costs is to meet with suppliers.
If your business is steadily growing, a supplier may see the value in offering you discounts to keep you on as a customer.
Once you’ve followed the steps above, it’s up to you to stick to the budget that you create. Discipline is a trait that also helps entrepreneurs succeed, but this is a trait that needs to be honed over time.
Sticking to a strict budget may be the first time that you have to be 100% disciplined in business, and one deviation from the plan can lead to failure.
Learning how to track your financials can help you better understand your budget over time.
Financial habits may start with a budget, but there’s a lot more that needs to be done. Your business may have budget goals in hopes of reducing costs or improving profit margins. The only way that you can reach your goals is through:
For example, perhaps you have the opportunity to open a new office three towns over in a prime location. If you do not have up-to-date financials, you may assume that since business exceeded expectations in the first quarter of the year, you’ll have more than enough money to open the office.
Data-driven financials allow you to know for 100% certainty if you have the capital to open your office.
Successful entrepreneurs will analyze their books, look through sales and use the data that they collect to make data-driven decisions. When you use data to make decisions, you reduce risk and improve the odds that your decisions will lead to business growth.
Do you want to know how to be financially successful in business?
Invest in the future.
A prime example of investing and diversifying (or lack thereof) is Blockbuster. If you remember the video rental giant, they were in a perfect position to continue being the largest name in the entertainment industry.
The problem was that the company failed to diversify.
Instead of investing its capital into streaming services, the company failed to capitalize on the growth of streaming and was overtaken by Netflix. The company failed to manage its risks properly because they were confident that its business model was never going to be replaced.
In business, the only certainty is that you need to evolve to meet consumer demand.
A few ways that a business can evolve are through:
Financial habits often overlook the importance of risk management, but it can be the sole reason a business stays afloat. It's important for every decision to be carefully considered and for you to crunch the numbers to understand:
Opportunities are all around us, but it’s easy to choose bad, risky opportunities because they often have promises that are too good to be true.
One of the financial habits that you should work on building is analyzing the risk of every investment and of not diversifying. If you fail to miss an opportunity, you may miss a transitive moment to change the course of your business.
Successful entrepreneurs have mastered the art of negotiation to minimize costs and maximize profits. They know how to secure the best prices with suppliers in order to keep costs to a minimum and how to close deals.
Entrepreneurs must have a number of negotiation skills to succeed, including:
Learning how to negotiate strategically is a valuable skill that every entrepreneur should possess and leverage in order to reduce costs and maximize profits.
One of the most impactful habits of successful entrepreneurs is to seek out the advice of experts and to build a strong financial team that you can rely on.
Successful entrepreneurs surround themselves with people who are smarter and more experienced than themselves. Why? Because it takes a village to build a thriving enterprise, and that means building an extensive network of advisors and experts that can provide guidance and help.
Which experts should be on your financial team? While every entrepreneur is different, most will benefit from having the following professionals on their side:
Most entrepreneurs will want a dedicated tax professional on their team, preferably a certified public accountant (CPA). CPAs undergo extensive education, testing and licensing. They will have the experience and expertise that you need to build your financial A-team.
A CPA or tax professional can help with:
A tax professional is one expert you want on your side from day one.
A financial planner can help:
Many entrepreneurs make these experts the head of their financial team, and they may coordinate with the other financial experts on your team to ensure everyone is on the same page.
An insurance broker is another financial expert who can provide valuable advice and guidance when it comes to covering risk. They can help you determine which coverage you need and help you find a solution that provides the most protection against liability and other risks.
Depending on the nature of your business, you may have other financial experts that you want to add to your team. For example, some entrepreneurs also seek the help of an estate planning attorney or have a designated CFO (Chief Financial Officer) to help them manage the operation’s financial affairs.
Having a team of financial experts will allow you to spend more time focusing on what you do best – building and growing your business. Unless you’re a financial expert yourself, you can benefit from having a team of professionals in your network.
Building a successful business requires time, patience and the right plan. Successful entrepreneurs adopt these five financial habits because they help them pave the way for future success. Proper management of your business’s finances is crucial because if your business isn't generating enough cash to cover its operation, you won’t be in business for long.
You may be interested: