We’ve all seen how the pandemic has, in a way, forced people to be enterprising and think like an entrepreneur. When people were laid off, furloughed, and displaced at the onset of the COVID-19 pandemic, folks began to look for other sources of income to sustain their families’ needs.
We saw how creative people became. Essential businesses were the only ones that were thriving at first but then eventually, folks who were bored and stuck inside their houses came up with their own creative home-based businesses that allowed them to trade both essential and non-essential items and services just to survive.
How Financial Know-How Plays a Crucial Role in Entrepreneurship
As important as creativity is to any business, it is not enough to make it a success. Ingenuity should be paired with financial know-how for a business to succeed and thrive.
1. The better you are with finances, the better your credit rating will be.
One thing you need to know is that starting a business requires capital. If you have enough savings in the bank that can fund the type of business you have in mind, good for you. But in most cases, entrepreneurs looking to start a business need to borrow money. Sometimes they approach friends and family, other times they go to lenders and investors. The latter group typically will make you undergo a credit check to see if you’re worth taking a risk on or not.
If you’re lousy with the way you handle your finances and you have a bad credit score, chances are your loan will not be approved. However, if you are wise with the way you manage money and you have an outstanding credit score, it is easier for lenders and investors to place their confidence in you and your business.
2. Every business needs a financial plan, especially on how to allocate and spend money.
We all know how difficult it is to create a budget and stick to it. In this case, it goes beyond just financial know-how but it already becomes a matter of discipline and self-control.
When you’re in business, you must always keep track of where your money is coming from and where it is going. If you’re just starting out, keep all the receipts you acquire along the way. These will give you a good idea of what your expenses will be like regularly. On top of the regular expenses, you should also set aside money to pay for your taxes.
It is also recommended that you keep your personal and business finances apart from each other. It will help you clearly identify which expenses are accrued by the business and which ones are yours.
3. It will enlighten and empower you to make sound investment decisions that are good for your business.
Being financially literate and wise will help you make well-informed decisions that will benefit your business as well as yourself.
Learning to look for the best mortgage rates and best deals from suppliers will help you save as much as you can. Each penny that you save from these things can be diverted to other business-related investments such as machinery and equipment, for instance. It will give you better discernment on how to maintain and improve your business’ operation costs.
It will also allow you to make certain forecasts about your business’ financial standing. Having this knowledge will give you a clearer revelation of how to navigate your business should certain challenges present themselves, such as this pandemic we’re in right now.
Again, while creativity and critical thinking are important in any business, the way you manage your business’ finances are equally important.