How well your small business performs and its prospects for growth go hand-in-hand with making smart financial decisions. After all, the decisions you make can impact your bottom line.
Moreover, the contributions small businesses make to the broader Canadian economy are integral to our country’s health.
Considering 98% of employer businesses in Canada are small businesses employing 68% of our total private labour force, and small businesses contributed 37.5% to our nation’s gross domestic product in 2018, how well small business owners manage their cash flows based on the financial decisions they make is of vital importance.
What Is Financial Literacy?
Financial literacy is possessing the knowledge and skills you need to make informed, responsible decisions utilizing your financial resources.
Among the top concerns small business owners have are inflation and rising interest rates, according to Ipsos. That’s consistent with what the Zensurance 2022 Small Business Confidence Index results found, with 51% of respondents to our survey highlighting inflation as their greatest worry.
November is Financial Literacy Month in Canada. Championed by the Financial Consumer Agency of Canada, the annual education and awareness campaign is designed to help Canadians learn more about sound financial management.
Managing a business’s finances is complex. It’s vital for small business owners, entrepreneurs, and self-employed professionals to be well-informed about finance to effectively manage cash flow, be ready to file taxes, and plan ahead by accurately predicting profits and expenses. That is why it’s worthwhile for business owners and self-employed individuals to upgrade their financial prowess.
5 Tips for Small Businesses to Enhance Financial Literacy
Here are five tips for small business owners and self-employed professionals to consider to help improve their financial literacy:
1. Get Out of Debt and Stay Out of Debt
It’s easier said than done but eliminating personal and business debt is the no. 1 way to remain profitable and have the money to grow your business or deal with unexpected expenses. Carrying debt means paying interest on that debt. And if that interest is variable and not fixed, each time the Bank of Canada raises its benchmark interest rate (which it is likely to do for some time), servicing that debt becomes more expensive. If that debt grows too large, it can lead to bankruptcy. If you must carry debt, be careful not to over-leverage your business.
2. Help Your Employees Grow Their Money Smarts
Provide your employees with financial management training by implementing a financial wellness program. Not only will financially literate employees be more productive and engaged, but having a better understanding of profit and cost can help them see your company and their employment and salary positively.
3. Build an Emergency Fund
Your parents, a teacher, or mentor may have told you to save money for a rainy day, and it’s sound advice. Setting aside funds in case of emergencies or economic downturns can be a lifesaver. It’s recommended to have three to six months’ worth of your monthly expenses in an emergency fund. Being prepared for financial emergencies alleviates stress and provides you with the opportunity to manage whatever comes your way.
4. Get a Business Insurance Policy
Business insurance provides you with financial support for unexpected accidents or things beyond your control. However, our data suggests that 40% of small business owners don’t have insurance. Whether you own a small business or work as a self-employed professional, should a fire destroy your store and inventory, or if you’re faced with a lawsuit, the cost of either scenario could be financially devastating and drive you into bankruptcy.
5. Create or Update Your Business’s Financial Plan
Chances are you already have a financial plan to use as a blueprint for managing and growing your company. If you do, it may be worthwhile to revisit and refresh that plan. If you don’t have a financial plan, create one that details where you’re at financially now and forecasts where you want to go.
Financial Literacy Resources
There are many financial literacy resources available online to help you and your team up your knowledge, including:
- The Financial Consumer Agency of Canada offers general money and debt management tips.
- The Business Development Bank of Canada provides several tools and resources for business owners and entrepreneurs to learn more about financial wellness.
- The Chartered Professional Accountants of Canada provide publications, worksheets, and surveys to help business owners learn more about money management.
Lastly, if you’re seeking ways to minimize your expenses as economic headwinds persist, or are concerned about paying your insurance premium on time, have a conversation with one of our licensed brokers. They may be able to make changes to your policy to lower your costs or help you find a policy from a different insurance provider that addresses your risk but at a lower annual premium.
– Reviewed by Vinoth Thiru, Team Lead, Technology and Professional Liability, Zensurance.
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