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Business owners need to improve their financial literacy. In a survey of reasons why startups fail, CB Insights found that 29% went out of business because they ran out of money. This all-too-common problem can be remedied by being financially literate, as financial knowledge can help business owners avoid mistakes that would cause their business to go bankrupt. That's because financial literacy gives business owners a nuanced understanding of vital aspects of business, like accounting, taxation, budgeting, and payroll.
Improved financial literacy will also help business owners strategically prepare for downturns, take advantage of opportunities, and come up with viable solutions to problems such as overspending and disproportionate resource allocation. Indeed, financial literacy improvement ought to be one of the goals of every business owner, and the tips below will help in that regard.
Get financial literacy lessons
The glaring absence of personal finance in K-12 standards means that generations upon generations of Americans are likely without formal education in matters related to finance.
That said, nothing is ever too late when it comes to learning, as business owners can attend financial literacy training sessions, consult with financial planners, or even take actual courses in finance or accounting. Taking a basic course in accounting, in particular, is highly recommended since a basic understanding of it helps not only in improving financial literacy, but also in interpreting financial statements.
Create a financial advisory team... and consult with them
Just as business owners need to form teams to run the business' operations, they must also form a financial advisory team composed of a CPA, a business and trust and estate lawyer, a P&C advisor, a life insurance advisor, and an investment advisor.
This team will be a valuable resource in terms of understanding the financial side of the business. Having said that, business owners will need to meet with this team regularly for financial planning and coordination and to pick their brains about financial matters.
Scrutinize the business structure
Going over the business' legal structure is a great way to learn not only about the legal aspects of running a business, but also how these aspects affect the financial side of things. Mostly, this financial impact has something to do with how the business is taxed. And given how sole proprietorship and limited liability company (LLC) are two of the more popular legal structures for small and mid-sized businesses, it makes perfect sense for business owners to be scrutinizing both.
For LLCs in New Jersey, in particular, taxation covers sales tax and income tax, as well as a variety of other charges, like corporation business tax, gross income tax, insurance premiums, and recycling tax. On the other hand, an Entrepreneur article on sole proprietorships in the country details how they are taxed differently, with the business owners' income and expenses both included in their personal income tax, which they will have to pay on top of their self-employment tax. By studying these structures, business owners will then get a firmer grasp of finance in relation to taxation.
Use data aggregation apps
Lastly, business owners need to leverage technology. One way to do so is by using data aggregation apps, like QuickBooks, Wave, and Due. These apps help business owners understand better their business' financial health through constant and real-time monitoring of a variety of metrics, including cash flow, credit, and expenses.
Crucially, these apps employ artificial intelligence, allowing them to make sense of all financial data collected and give recommendations based on said data. These same data can also be discussed in meetings with the financial advisory team or used as a reference point when reviewing the business' legal structure.
As a final note, business owners need to adopt a mindset of lifelong learning. In this way, every opportunity is a chance to learn, whether about finance, about the other aspects of business, or about life in general.
Article specially contributed to dmfinancialliteracy.org
Contributed by: JBrander
It’s a great time to venture out on one’s own, as more employers than ever are looking to hire contractors and freelancers for a variety of work to save money rather than investing in full-time employees (with benefits) for work that can readily be done by independent professionals. Working in the gig economy means working on your own terms, according to your needs, strengths, and desires.
If you have a marketable skill and experience, the gig economy can provide you a route to financial and professional independence — or a whole new rewarding career. One of the wonders of the gig economy is the sheer number of available opportunities, anything from pet sitting to website design.
DoughMain Financial Literacy Foundation, Inc. knows that getting started can be a challenge, so consider the following tips if you believe the gig economy is for you.
If you’re looking for a niche that suits your particular skills and offers excellent profitability, consider opening an ecommerce store. In fact, there are plenty of opportunities available to people who want to get started. Dropshipping, for example, puts you into the retail marketplace without needing to maintain a physical inventory. To get the ball rolling, write an engaging CV based on a professional-looking template that enhances what you have to offer prospective clients. As Network Solutions explains, you can either choose to do business-to-business transactions or business-to-consumer — it just depends on what product or products you wish to offer.
Ready to Roll
If you're ready to get your business set up, an important early step is to create a legal business entity. The business entity is controlled by the state in which it's set up, and each type of business entity has its own requirements.
One popular method to going legal is forming a New Jersey LLC. LLCs typically offer the most flexibility while still providing security to the founder(s). Other business types include LLPS, S-Corps, and C-Corps, but because an LLC can usually be formed in about 5 steps, it's often the 'go-to' for solopreneurs or those that plan to keep their team (and overhead) small.
Establish a Presence
So you’ve selected your business — now you need to let others know about your expertise and capabilities. That means creating a strong online presence, a place where potential clients can find you and get the information they need to make a decision.
There are several excellent ways to do this. Most people begin with a website that contains background, CV-type information, a rundown of past work with samples (i.e., a portfolio), contact information, and more. You can build and maintain a website cost effectively by using a free website builder such as Wix to design your website, and inexpensive hosting plans are available as well.
Social media sites such as Facebook and LinkedIn are also good ways to get your name out there and begin building a following. And word-of-mouth can be invaluable as you get started, so reach out to former clients, colleagues, and employers — anyone who could put you in contact with potential clients (or offer you work themselves).
Employers look to the gig economy for very specific needs, so make sure you’re offering a very specific, niche-oriented service. Remember, you’re no longer in the corporate world offering to be a generalist in the interest of good teamwork; that’s not what companies are looking for if they’re going to contract with you. Do the best work you can within the parameters of your niche.
To do your best work, TechRepublic recommends setting up a home office with minimal distractions (no TV screens, no video gaming) and decorated with elements aimed at providing a calm and soothing work environment, including green houseplants and photos of family and past vacations. It’s best to keep things sparse so you don’t lose focus at times when you really have to dig down and concentrate.
The gig economy can put you on the road to an exciting new career or provide a means of generating supplemental income. The best part is that you can do it in your own time and pick and choose the type of work you’ll do. However, remember it’s important to maintain the same professionalism that made you successful in previous positions.
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