They didn’t teach anything about profit and loss statements or budgeting when I studied for my MA in Danish literature here at the University of Wisconsin. Like many independent retailers, I never took a single business course.  I learned most of what I needed to know through trial and error, which was one reason I decided to share what I learned in my book, Specialty Shop Retailing.  But no matter how you acquire these skills, your business will be more successful if you have a basic understanding of your financials.

These are the five financial skills I consider essential:

1. Basic bookkeeping. When COVID hit, I found myself doing our shop’s books for the first time. I got a copy of Bookkeeping For Dummies from the library, and worked my way through the online instructions for Quickbooks.  Even though we now have a bookkeeper again, my understanding of what she does is much greater having handled those tasks for a few months.

2.  Interpreting financial statements.  Accounting software produces many basic reports, but they won’t do you much good unless you know what a balance sheet and P & L (profit and loss statement) mean. You’ll want to be able to review these to know how your business is doing, and also to catch any discrepancies and errors. 

3. Understanding payroll deductions, taxes and regulations. If you have employees, make sure you are doing everything correctly. The penalties for errors in handling payments and deductions can be severe.  

4. Budgeting for expenses. Although you may need a budget to get a business loan, it’s common not to follow one strictly over the years.  But it’s still a good idea to have a handle on what percentage of your income is going to various expenses so that you can make adjustments when necessary. 

5. Forecasting and open-to-buy budgeting. Predicting your cash flow is essential to avoid the unhappy situation of not being able to pay your bills. While forecasting is tricky to do in the first year or so of business – or when hit by something unexpected like a pandemic – you should eventually have a general idea of what your sales income will be each month. This is important information to use when determining how much will be available to invest in merchandise. Learn about the concept of open-to-buy budgeting, even if you decide not to adhere to it strictly.

There are many ways to obtain the financial literacy you may be lacking. The library is a great resource, as are the local offices of the Small Business Development Center.  You might find an accountant, banker or SCORE volunteer willing to answer your questions. There are many people who want small businesses, including yours, to succeed.

Happy Retailing,

Carol “Orange” Schroeder

Please note that there will not be a Specialty Shop Retailing blog post next week