Congress has designated April as National Fiscal Literacy Month. Originally recognized as a time for individual consumers to increase their education and knowledge about matters relating to personal finances, it is also a wonderful time for business owners who want to take some time to enhance their understanding of multiple fiscal topics:
1. Understanding credit — You may have familiarity with personal credit scores (otherwise known as FICO scores) you receive through things like Experian and Equifax. These ratings of your personal credit worthiness impact the rates and products quoted to you for everything from mortgages and credit cards to car loans and even personal lines of credit. Your business has a credit rating as well that can be rated also by Experian Business and Dun & Bradstreet, among others — Lenders and other vendors will determine how much money or credit towards inventory, etc. they will allow your business based on that business credit profile.
Things like length of operations, previous claims, judgements, public filings or lawsuits against the company and outstanding debts all impact how much credit is extended to your business. Get a handle on the items that are negatively impacting your business credit profile and correct what you can.
2. Evaluating your debt load — Every business operates with some level of debt — It might be balance due on inventory purchases, a mortgage note or startup bank loan or even settlement balances from previous litigation. Just like in your personal fiscal situation, some debt is better than others. During this month focused on financial knowledge, examine all of your debt loads and evaluate which should be prioritized to be paid off.
While you may have a large mortgage on a commercial property with a substantial payment each month, that debt may be financed at a much lower, more stable rate than say a corporate credit card. Even if you have a lower balance on that corporate card than your mortgage balance, focus on paying down/off that balance because the interest rate is often substantially higher and much more volatile and tied to short-term interest rates.
3. Revisiting payroll settings and employee classifications — Especially in states like California with strict and sometimes changing regulations relating to employee classifications as full-time, part-time and contractor, it is essential you understand how all your employees are classified and paid and how that impacts your overall bottom line when it comes to taxes and liability. Be sure you work with your HR team to ensure everyone is classified as they should be for the rest of the year and moving forward and you have clear protocols in place for any new staff onboarded during the year.
4. Reviewing lease terms before your next renewal — The absolutely worst time to decide if you are happy with your current space and overall lease terms is right before it comes up for renewal and you are pressed for time to make a decision. In order to be truly financially literate for your business, you should understand all the elements of your lease and which parts are negotiable/fluid and which are fixed so you can be prepared to smartly negotiate your needs when renewal arrives. Schedule a quick call with your leasing agent or rep to review the terms you would like to examine or change well in advance of the next renewal so you can be an educated lessee.
5. Truly understanding your expenditures — Since April is also frequently a month focused on taxes and corporate financial planning overall, this is a perfect time to examine your expenses as outlined on your 2021 corporate or business tax return. Look at your categories of expenses and do an apples to apples comparison to 2020, 2019 and earlier…Are you identifying key trends? Are there areas where you feel like the proportion of a certain expense is unnecessarily high in relation to other costs? If there are ways to potentially reduce high percentage expense categories by even a small amount, it might have an exponentially positive effect on your bottom line long term.
6. Evaluating and mitigating risk and financial impacts of losses — Being fiscally smart and knowledgeable also means understanding your risks and impact of potential losses. April is a good time to review all your insurance coverages to ensure all policies are up to date and any payments would adequately cover your genuine losses, not just what you think losses might be.
7. Maximizing assets and capital — Recent rate moves by the Federal Reserve mean two main things: 1. The cost of borrowing money will increase and 2. Savings interest rates will increase. As a result, you may be able to do more with your capital and assets; basic checking and savings options are now enjoying higher rates of return and that will continue to increase as the Fed raises rates through this year and into next. Discuss your current asset management options with your banker or financial advisor to determine if there is a better place to park any liquid business assets.