Many people believe that businesses are formed on the principles of a brilliant concept that is ready to change the world, while this may be true to a degree, the idea does not progress too far if it is not supported adequately by other sophisticated workings, such as 'Financial Literacy'.
If not for a basic concept such as financial literacy a business will not be able to develop at all, but why is that? Well, simply put, good financial decisions lead a company to gain high revenue which in turn develops a business, and bad financial decisions lead cooperations to loss of revenue and hence work towards the demise of the set business due to lack of funds to continue it.
There are various financial decisions that can be taken without knowing one's situation, as these few ideas are general to people willing to start a business, despite their financial or economic standing. These ideas consist of:
1. Creating a spending plan and budget:
One of the biggest misunderstandings individuals have is that people who own a business live lavishly because they OWN a company, this may lead to people who own a business to live with extreme amounts of luxuries disregarding the level of revenue made or any externalities affecting their finances because they want to put on a financial front to climb in the social hierarchy because others believe that a person owning a business must do well for themselves. - The easiest way to avoid such issues is to track expenses, understand the investments required for upgrading your business, the returns received on those investments, and lastly, set an amount of personal profit received based on the revenue generated. These are some simple steps one can follow to develop a profitable business. The easiest way to track expenses is by making Excel sheets, with required necessities such as the amount invested, units sold (if there is a product being sold), revenue generated, tax paid per financial year and so on.
2. Setting aside savings for the future:
Having savings for the future in case there is a problem is vital for the safe growth of a business, as it prevents any form of fallout in case there is any issue. The easiest method to pursue this is by having set increments of revenue that will be put back into the company. For example, 2% of all profits of the company go towards saving to future-proof the company from any fallbacks.
Well out of all the principles of finance for a business, these are two that apply to everyone despite their situation if they look to start a business, or already own a business. Apart from this, it is also visible how financial literacy is important as if such steps are not followed (like the ones mentioned) it can lead to disasters, which is also visible in our real-world environment as we see companies like ‘WorldCom’ fall due to poor financial management.
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