Many business owners think that they can just get by without knowing the fundamentals of running a company.
This is simply not true!
There are at least four critical skills that every entrepreneur must know to ensure their company stays afloat.
1 The Four Pillars of Financial Success
First and foremost are the four pillars of financial success: cash flow, profitability, liquidity, and efficiency. They may sound like a no-brainer, but these four pillars can be the difference between success and failure for many business owners.
The first pillar of financial success is cash flow, or simply how much money a company has coming in versus going out on an annual basis. If you are running low on cash, it will affect your ability to pay employees, suppliers, and other vendors as well as your capacity to grow the company.
The second pillar is profitability, which measures how much money a company makes versus what it spends every year. This measurement will also show if you’re making more than enough profit or not making any at all and whether it has been consistent over time.
Liquidity refers to the company’s ability to pay its short-term financial obligations. If you’re not managing your company’s liquidity well, it will affect the business’ credit score and make it harder for them to get a loan or purchase inventory.
Efficiency is how much money each employee produces on average over time. One of the best measures of this metric is gross profits per employee, which is what the company makes each year divided by how many employees it has.
2 Budgeting and Tracking Expenses
The second critical skill that every entrepreneur needs to know is budgeting and tracking expenses. Budgeting can be tricky because of all the things a business owner will need to consider, such as payroll, purchasing inventory months in advance, and purchasing equipment. But thanks to technology, there is no shortage of great software that can help you manage your budget.
The best way to keep track of your spending is with a software that will give you an overview of all the finances. It also helps if they have reports built-in, allowing you to see what’s important to pay attention to, like how much money has been spent per month.
3 The Difference Between Assets and Liabilities
The third critical skill that every entrepreneur needs to master is understanding the difference between assets and liabilities: Assets are what a company owns, while liabilities represent debts or expenses owed by the business. It may sound simple, but when you’re running a business, it’s easy to get consumed with your assets and forget about the liabilities that can sink you.
4 A Good Credit Score
The final critical skill is establishing a good credit score. If you want more customers, suppliers, or even lenders, good credit is a must. Sometimes, you might need another loan or line of credit to rebuild your credit score. At SOS Capital, we are proud to be the type of Fintech (financial technology company) that is revolutionizing the way business owners with limited or bad credit get their loan. SOS Capital can help you establish a good credit score in as little as three months by using our unique approach to underwriting, we make sure to find the right product for your business’ needs. We have a 95% approval rate for loans and offer flexible terms for borrowers. Feel free to contact us if you have any questions.
