I just read in one of my daily emails that a recent study by Intuit says that 40% of small business owners consider themselves financially illiterate.
What that means is small business owners don’t know how to read their financial statements and tax returns.
They just trust the professionals doing the work to do things correctly.
It was too long ago that one of my audit clients told me this himself.
I was reading his financial statements from his accountant. I was attempting to ask him questions about the statements, but he said he had never before seen those statements, nor did he know how to read them unless I specifically pointed stuff out to him.
I was asking questions because there were some sketchy transactions on his financial statement that he knew absolutely nothing about.
His accountant then got very angry with me for asking the client questions and not going through the accountant to ask questions.
More reasons to question those sketchy transactions, which turned out the accountant was using his client’s bank account to make purchases of his own.
And since the client had no idea how to read the financial statements himself, he had no idea that his accountant was essentially stealing from him.
Is Financial Illiteracy Hurting Your Business?
It could very well be.
Like my client above, his so-called professional was actually stealing from him.
While you don’t want to have an audit that actually helps you find this stuff, that’s what happened in this case and countless other cases too.
There are business owners who find and even other employees who find the professionals are doing a poor, or even illegal, job as well.
But with the stealing set aside, how else can your financial illiteracy be hurting your business?
There are so many ways that you can use your financial statements to grow your business as well, but when you don’t know how to read the statements, you can’t exactly utilize this information.
Seasons and patterns in your business
It really doesn’t matter if it’s your revenue or your expenses, you have will always have seasons and patterns in your business.
For your revenue, these seasons and patterns will tell you when you bring in the most revenue in your business.
You can look at these seasons and patterns to help you continue to capitalize on your money making opportunities in your business.
What have you been selling to bring in more cash in your business?
What products or courses actually sell best for you?
When do your clients actually buy from you the most?
What do you need to continue doing to keep bringing in the cash like you are?
For your expenses, you still have these seasons and patterns with your spending, and they can help you realize when you really do spend more money.
They will also help you realize when you end up spending more money in your business as well.
Yes, there are times when you spend more money in your business.
Think: not getting that client that you were thinking you totally had.
Or after just having a super stressful day.
Or even just scrolling through facebook and an ad just really speaks to you in the moment.
Or one of the many email lists you are on, you finally open an email and read it and the product or course being offered is something you think can really help you right now.
All of these are patterns and seasons that you have in your business.
But when you don’t really know how to read and analyze your financial statements, you don’t know how to properly utilize this information.
How can you change your financial illiteracy?
Hire a professional to help you understand
I know I started this post with an example that may make you not want to hire a professional. But that was an extreme case. (His business was audited for a reason and a good reason too.)
When you hire a professional though, you just need to be able to ask your questions. Have the deliverables given to you. And actually sit down with your professional to have them go through any questions you may have and even the thing they’ve noticed.
When you work with me, we have a weekly 10-15 minute check in. I’ll ask you any questions that I have about transactions and you have the opportunity to ask me questions.
These weekly check ins keep both of us accountable and actually help you continue to grow your business.
Find accounting blogs and other materials to help you learn
There are a lot blogs and courses and products out there that can help you learn. No not all are created equally.
But you have many opportunities to help you learn this information for yourself without having to spend an arm and a leg on it.
DIY and just try to figure it all out
I’ve had a lot of people attempt this and end up coming to me with a huge mess that they just got so lost in.
I understand you may not have the money to really try to figure this all out. But the financial aspect of your business is not an area that you should skrimp on. Ever.
When you skrimp on the financial aspect, not only does it hurt your business growth, it can also bite you when it comes to your taxes and being audited.
Do things correctly from the beginning and you’ll end up in a much better place in your business.
Are you financially illiterate in your business?
Even if you are, there are tools and professionals that can help you.
The only time it’s too late to make a change is when you get that letter that you are getting audited. You can make changes going forward, but not backwards. An audit will always look at your past.
Start getting more financially literate today.
Find a professional to work with. Do the research to figure out the most important things you need to know.
Stop letting something that really scares you and stresses you out, hold you back from taking the bull by the horns and fully being in control.