You may be a business owner and eager to know why business owners need financial literacy. Do you possess any financial skills? It is essential to run successfully any type and size of business. Experts are of the strong belief that financial education is quite important and valuable compared to money.
About Financial Literacy
It is considered to be the knowledge or acumen available about finances related to business. Entrepreneurs’ financial skill permits them to make crucial decisions based on available financial-related information. Thus, their decisions get solid backing concerning their business. It is also stated to be a skill set package enabling entrepreneurs to manage skillfully their business.
Its significance for entrepreneurs
Surveys were conducted on the possible failures of startups. 29% of startups were found to run out of capital, considered to be the main reason for ending up a failure. 18% experienced cost, and pricing issues. This meant, about 47% not being able to evaluate their startup’s financial aspects and hence had failed. There were many entrepreneurs who were reported to be forced to close their businesses abnormally. Perhaps, they had made less rational and impulsive decisions which caused their startup’s downfall.
Achieve success
Learning credit management can help entrepreneurs to earn excellent market share. They can also make profits and enjoy constant growth. The financially skilled entrepreneur can be stated to be one who can make wise as well as financially principle-backed decisions. Thus, it gives way to success.
Examples of poor financial management
There are a good number of people who fail to attend to their day-to-day financial management. This results in them facing unwanted issues.
Some fail to make timely credit card payments.
- Some lack sufficient savings from earnings.
- Some fail to save money earned from their services only to live a miserable life later on.
- Some are unable to afford healthcare bills or education fees.
These are undoubtedly classic examples of people having poor knowledge of handling finances.
Why should entrepreneurs have knowledge of finance?
This is necessary for any business to grow. If you are running a business, then you need to be aware of its health just like any other thing having an expiry date. Otherwise, you will have trouble soon. The same goes for business-related finances. Without knowing the financial condition of your business, you are likely to face trouble at any time.
1. Hone negotiation skills:
Since you are financially literate, you can make proper decision-making. Also, you will be able to flourish quickly while negotiating with clients and vendors alike.
2. Improved financial management:
Being financially literate and having knowledge of credit management will mean you can understand better your cash flow. Also, you can monitor expenses effectively and create budgets as well as make well-informed decisions on loans and investments.
3. Enhanced profitability:
You will be able to evaluate financial reports and make strategic decisions, thereby enhancing profitability.
4. Effective communication with all stakeholders:
You can communicate with investors, lenders, and employees quite effectively.
5. Control:
You can have a better grip on your business and derive remedies quickly.
6. Enhanced risk management:
For any business to grow, proper risk management techniques should be adopted. You will be able to expect financial challenges. Also, to address them, you can develop contingency plans.
7. Make proper decisions:
Decision-making becomes effective since it will be based on using available financial data.
8. Allows proper budgeting:
You need to forecast your business on time. This should be done with budgeting.
Thus, as an entrepreneur, Financial Literacy is very important. Being financially literate enables you to overcome financial challenges and grow your business quickly.
