Tax Tools & GuidesFinancial literacy for small business ownersKey financial insights for building your dream business "If you don't know where you are, it's hard to plan where you're going." - Roger Harris, President of Padgett Financial literacy is essential for effective financial management. It includes the knowledge and skills to handle budgeting, cash flow, financial statements, and tax planning. By improving financial literacy, small business owners can make informed decisions, reduce risks, and drive growth. Understanding finances helps in assessing business health and making strategic choices. Financial literacy isn’t just about crunching numbers; it’s also about gaining insights into the financial health of your business and making strategic decisions to achieve your goals. Well-informed owners are better prepared to navigate challenges, seize opportunities, and ensure long-term success.  The cost of financial illiteracyA 2023 survey conducted by the National Financial Educators Council revealed that an insufficient knowledge of personal finances cost individuals, on average, $1,506. About 8% of those surveyed estimate that the cost of their financial illiteracy was $10,000 or more. Key financial terms you need to knowFinancial literacy begins with understanding some essential terms that will become familiar companions as you manage your business’s finances. These building blocks lay the groundwork for your understanding of more complex financial concepts down the road. RevenueThe total sales of goods or services generated by a business through its normal operations. It represents the top line of the profit and loss statement before deducting any expenses. Cost of goods soldDirect expenses a business incurs to sell or produce products and services for sale to customers. It includes direct labor, materials and product purchases, and overhead cost allocations. Gross marginThe difference between revenue and the cost of goods sold. It reflects a business’s earnings after deducting the direct costs associated with producing or purchasing the goods sold. Operating expensesExpenses, other than cost of goods sold, that a business incurs in running the business. Examples include administrative salaries and marketing costs. Net incomeA business’s profit after deducting all expenses from revenue. You’ll find it at the bottom of the profit and loss statement. ProfitabilityA business’s ability to generate earnings from operations. Key measures include profit margin, gross profit margin, and earnings before interest, taxes, depreciation, and amortization (EBITDA). AssetsEconomic resources a business owns to generate revenue such as cash, accounts receivable, inventory, and equipment. They are reported on the balance sheet, typically at their original cost, and may be adjusted if their market value exceeds this cost. LiabilitiesObligations or debts a business owes to external parties, including accounts payable, accrued expenses, and loans. They are reported on the balance sheet in the order in which they need to be paid. EquityThe difference between a business’s assets and liabilities as reported on the balance sheet. The market value of an owner’s interest in the business is usually higher than the amount reported. Current assetsAssets, such as accounts receivable and inventory, that are expected to be turned into cash over the next year. Current liabilitiesLiabilities that must be paid over the next year. Examples include accounts payable, accrued expenses, and current portions of long‑term debt. Working capitalThe difference between current assets and current liabilities. It’s used to gauge liquidity. A business needs to have enough current assets on hand to meet its current obligations. If not, it may have cash shortages. Cash flowThe movement of money into and out of a business over a specific period. EBITDA is often used to approximate cash flow from normal business operations. BudgetA roadmap for allocating resources and achieving financial goals over a specific period, detailing expected income, expenses, asset purchases, financing, and working capital needs. Business planA document outlining a business’s goals, strategies, and operations. Typically, it includes market analysis, financial projections, and organizational structure. Financial literacy doesn’t have a start and end; it’s an ongoing process to build your financial IQ. Using the right resources can keep you organized and on the right track. Make Padgett Part Of Your Financial Toolkit4 Steps for improving financial literacyFinancial literacy doesn't have a start and end; it's an ongoing process to build your financial IQ. Using the right resources can keep you organized and on the right track. Participate in training & educationEnroll in online courses, attend workshops, and visit websites that cover essential financial concepts, such as budgeting, cash flow management, and financial statement analysis.
Use technology & toolsExplore tools that will help you keep track of tax deadlines, documents you need to submit, and streamline your business processes.
Stay organized and use goal-setting toolsUtilize digital planner tools and hand-write your goals through whiteboards and physical planners where you can visualize and process them.
Engage with financial professionalsEstablish a relationship and schedule regular meetings and check-ins with an accountant who can provide ongoing financial guidance and assistance in the ever-changing tax and compliance landscape. Want to learn more? 5 Ways financial literacy helps you run your businessBuilding your business is more than just knowing key financial terms; it's about understanding how to apply them effectively. Discover how financial literacy leads to success Partnering and communicating with your accountantWhat are the actions you should be taking to maximize the benefits of the partnership with your accountant? Learn how to get more from your accountantHow Padgett can helpYour relationship with your accounting professional is one of the most important facets of building financial literacy. Padgett offers a network of trusted providers across the US. They’re part of your community and small business owners just like you. Padgett is dedicated to supporting small business owners on their entrepreneurial journeys & empowering them to enhance their financial literacy. Our network of CPAs and EAs is here to provide comprehensive support to help you navigate the complexities of business finances and mitigate the risks associated with owning a small business. As your trusted advisors, we are committed to:
With our range of services including tax, accounting, payroll, and advisory support, we ensure a deep understanding of your business’s financial landscape. We stand by your side year-round, offering continuous support and guidance to help your business thrive. In addition to our personalized services, we provide small business resources such as tax calendars, guides, and checklists to keep you informed and up to date with relevant information. |
Financial literacy for small business owners
Frequently asked questions
We take care of your books for you, so you can get back to the job of running your business and generating profits.
We offer payroll solutions that meet your business's needs and enable you to spend time doing what you do best--running your company.
We offer a variety of services to help make sure that you are taking full advantage of Quickbooks' many features.
We're here to help you resolve your tax problems and put an end to the misery that the IRS can put you through.
We offer one-on-one guidance and a comprehensive financial plan that helps manage risk, improve performance, and ensure the growth and longevity of your wealth.