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Financial Skills Business Owners Should Have

  • Highlights

  • Business owners must understand financial statements

  • They need to have budgetary skills

  • Tracking invoices is an absolute must

  • Proper bookkeeping saves from tax penalties

While business prudence is an essential component of success for a venture, having basic financial skills is equally crucial for business owners to maximise profits, understand pressing issues and rectify them. In a competitive landscape, financial acumen can be the difference between success and failure. Here are some essential financial skills every business owner should have.

Understanding Financial Statements

It's imperative for business owners to read and understand financial statements. These statements reflect the financial health of their venture. The key components of a financial statement include:

- Profit and loss statement
- Balance sheet
- Cash flow statement

It's essential for business owners to understand and interpret key metrics of such statements - liquidity, debt, cash, etc.

Budgeting Skills

Once business owners have a clear picture of their finances, it’s important to acquire budgeting skills. These skills are handy for planning and executing short and long-term investments. With the right skills, business owners can leverage their assets and resources to:

- Boost revenues
- Enhance productivity
- Bolster efficiency

Budgetary skills come handy while availing business loans and utilising them in a prudent manner.

Keep a Track of Invoicing

Receiving late payments from clients can affect a company’s cash flow. Hence, it’s important for business owners to keep a track of the invoices. Businesses must send an invoice as soon as they render a service. It’s essential for business owners to keep a track of invoicing. At the same time, it's vital to follow-up with customers for quick payments. Through advanced accounting software, business persons can keep a proper track of invoices raised and sent.

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Understand Tax Sops

Various provisions in Income Tax Act provide tax sops to business persons. It is crucial for them to have a basic understanding of the tax deductions they can avail. Self-understanding helps in better planning and managing taxes.

Tax sops help a business boost savings and improve cash flow. They can use the money saved to fund various initiatives to promote growth.

Keeping Records of a Business’ Finances

The onus of keeping records of a business’s finances not only lies with the accountant but also with the owner. The skills of bookkeeping come handy during taxation. It saves business owners from paying unnecessary taxes and penalties.

Attention to detail on their company’s financial records aid business owners to identify any anomaly, if any, and take corrective measures. It’s crucial to keep original vouchers/slips/invoices of all expenditure.

These financial skills play a constructive role in money management, improve revenues and stimulate growth for any business.

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