Most organizations, big and small, rely on external sources for their accounting and bookkeeping needs. Although outsourcing is a wise option for early-stage companies and small businesses, every entrepreneur must have some basic accounting and financial skills.
Why should entrepreneurs have accounting skills?
Every business owner needs to be familiar with the basics of accounting. Your business will record numerous transactions over time. These transactions reflect your financial positions and need to be accurately represented, i.e. accounting.
As your business grows, you need to make budget forecast and cashflow predictions. This is in fact necessary when you’re looking for investments. An outsourced CFO may help in making this analysis, however it is essential you understand all elements and implications of the planning.
Your accounting skills will also come very useful during tax season and during an audit.
As an entrepreneur, you must have these three accounting skills.
One of the crucial task in accounting is receipt maintenance. Even if you have an accountant to maintain your financial statements for you, you don’t want to have them utilize their time sorting through receipts. Another key thing to remember is to keep the personal and business receipts separate – to ensure there is no overlap, always have a separate bank account for your business needs.
Analysis and forecasting skills
A business isn’t just about an idea and its execution. The execution process is much more extensive than is perceived. As an entrepreneur, you will have to know your business in an out, including its financials and growth opportunity. Your financial statements, including the balance sheet and cashflow statement, are important indicators of what the future holds for your business. Venture capitalists, investors and board members will expect you to be aware of the financial predictions and sales forecast for your entrepreneurial venture.
Communication and presentation skills
Forecasting is step one; you need to learn to communicate these predictions and growth plans effectively. Be it in an audit or while pitching to a potential investor, your financials should be clearly presented. Your ability to defend your data-driven decisions is what can interest and impress a potential investor. You also need to understand your financial statements to communicate timelines for the growth of your business and service the demands of your potential customers.