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FINANCIAL INTELLIGENCE

FandK SavingsMay 10, 2022 · 6 mins read
Financial Intelligence - Learn How to be make informed financial decisions for your business.
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What is Financial Intelligence?

Financial intelligence includes the ability to analyze the numbers in greater depth. I.e., being able to calculate profitability, leverage, liquidity, and efficiency ratios and understanding the meaning of the results. Conducting ROI analysis and interpreting the results are also part of financial intelligence.

It also means being able to understand a business’s financial results in context - that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations, and changing customer needs and expectations, as well as new technologies, all affect how the numbers are interpreted.

Note: As an entrepreneur, it is important to note that every team member must also have enough information to make intelligent financial steps and decisions that will affect your overall business

In Peter Drucker’s words

”[The worker] should know how his work relates to the work of the whole. He should know what he contributes to the enterprise…if he lacks information, he will lack both incentive and means to improve his performance.”

“It is in the best interest of the organization that the worker have the information.”

Financial Intelligence is basically about knowing the ins and outs of a financial situation. It’s understanding and gaining knowledge and skills in finance…how to relate to money, what to do with money, what the best thing to invest in is.

While you can hire financially intelligent people to join your team and manage your finance, you must also have a great extent of financial knowledge.

FINANCIAL NET WORTH

Your net worth is the amount by which your assets exceed your liabilities. In simple terms, net worth is the difference between what you own and what you owe. If your assets exceed your liabilities, you have a positive net worth and, in the same light, if your liabilities are greater than your assets, you have a negative net worth.

Your net worth is like a screenshot of your financial situation at a point in time and when calculated periodically, it can serve as a financial report card that allows you to evaluate your current financial status and help you realise what you need to do going forward to reach your financial goals.

Your net worth may fluctuate. Keep in mind that it is not just the day-to-day value but the overall trend that matters; as you age, your net worth ideally should grow. Knowing where you are financially per time will help you be more mindful of your spending and it will help you make good financial decisions that could help you achieve your short-term and long-term business/personal goals.

Note

-Assets include investments, bank accounts, retirement funds, real estate, and personal items like your car or jewelry.

-Liabilities include loans and any other debt.

What role do grants and loans play in helping a business grow and improving financial net worth?

Whether it’s to help with the flow of cash or support operational costs, weather the storm through low sales, or expand for growth, owners need to acquire cash to support their business goals. The options for business funding vary greatly — loan amounts, repayment terms, interest, and all these options allow you to choose an option that aligns with your needs and helps drive your small business forward.

Can a business grow without loans and grants?

Yes!

You may not sustain for a very long time depending on the kind of business, but you can grow a business to an extent with rolled-over funds generated from the business.

How can a business owner or prospective business owner access grants and Loans?

Types of Loans

A Customer Getting a loan

Term Loans

When you think of a traditional business loan, you’re probably picturing a term loan. You’d receive your funds in one lump sum and repay it on a predictable schedule (varies by lender and qualifying rates and terms).

Who is it best for? Business owners who enjoy predictable, fixed payments. Term loans help your cash flow with no surprises or enormous costs up front.

What to consider: You may want to come back for a subsequent loan. If you end up needing more funds, you may be able to reapply for a second loan. Your lender may discount the unpaid interest and pay off the existing balance. Ask your lender for qualifying factors.

Small Business Administration Loans

A Small Business Administration (SBA) loan is a long-term financing option provided by a federal agency called the Small Business Administration. The SBA does not directly fund loans. Instead, they work with banks and private lenders to deliver a guaranteed portion of the loan.

Who is it best for? Someone looking for a long-term loan. Most SBA loans have longer repayment periods, with the added benefit of lower interest rates (5% – 14%).

What to consider: SBA loans don’t have early repayment penalties or fees. If you’re able to pay it off sooner, you may be able to save more money in the long run.

-Small Business Line of Credit

-Merchant Cash Advance

Small business grants are lump sums given to a person, business or corporation, usually from federal, state county or local governments but sometimes sourced from private businesses and corporations. Grants do not require repayment, so as you can imagine, they’re challenging to come by. Use resources like the Small Business Administration to identify available grants and see what you qualify for.

Who is it best for? Entrepreneurs looking to supplement their business funding. Small business grants are usually much smaller than what you can receive with other sources of capital, so it’s advisable you also pursue this along with other business funds.

What to consider: Most grants have prerequisites (e.g. a veteran-owned business with fewer than 20 employees with a history of supporting philanthropic efforts) or rules to comply with to receive the funds.

Venture Capital

This form of private equity is sourced by investors looking to get in at the ground floor of an up-and-coming startup. Investors are typically experienced with these types of business opportunities and are supported by a firm or an investment bank. As with traditional types of equity, most investors expect a stake in the company.

Who is it best for? Confident business owners who know how to sell their idea and have the business plan, experience, and data to back it up.

What to consider: Venture capital support isn’t always cash. Sometimes it comes in the form of additional resources, technical expertise, or managerial guidance.

How to get venture capital funding

There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.

Find an investor 

Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.

Share your business plan 

The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.

Go through due diligence review 

The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.

Work out the terms 

If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to invest.

Investment

Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.

Angel Investment

Similar to venture capital, an angel investor is a private equity source. The financially capable individual provides business funds to startups or innovators for equity. 

The biggest difference between venture capital and angel investments is the latter often has a personal connection or has networked with the business owner. Additionally, it’s more common for angel investors to provide seed money or make a onetime investment to help the business get started whereas venture capitalists tend to stay involved.

Who is it best for? Small business owners that are connected to private investors.

What to consider: If you’re just starting out, it can feel drastic to give away a portion of your company. Make sure you fully understand the angel’s offer and weigh the risk and reward. 

In the long run, with every decision a business owner makes, financial intelligence is key. Financial intelligence also deals with emotional intelligence.

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