Financial Concepts for Small Business Owners

April 20, 2016

Minnesota business owners need to have a clear understanding of concepts such as budgeting, pricing strategies and cash flow in order to succeed. Some might think that they only need a business plan if they are going to seek equity or debt financing, but this is not the case. A business plan helps a new owner make a budget, set goals and estimate cash flow and is necessary to get a clear picture of how the companywill operate.

A budget is critical, but it also needs to be flexible and allow for the unexpected. It is likely to evolve over time. Understanding cash flow is also crucial. The most important aspect of cash flow is to make sure enough is coming in to cover what is going out. When this is not happening, a reassessment of pricing and other factors may be in order. Small business owners must understand how to set pricing in relation to expenses. It is also important to have a sense of how long it takes invoices to work their way through the system.

A balance sheet looks at assets and liabilities, and a business owner should have one by the middle of every month. Software is available that can generate balance sheets if the business does not have a bookkeeper.

A new business owner has a great deal to think about, and it may be helpful to work with an attorney through business formation and other aspects of setting up the company. An attorney might have advice as to what type of business entity would be most appropriate based on the business plan. An attorney may also be able to help with any necessary registration and documentation as well as issues such as taxes and contracts.

This information is general in nature and should not be construed as tax or legal advice.