The importance of financial literacy for entrepreneurs and business owners
Do you understand the financial indicators in the business that you run? Are you across the financial mechanisms that underpin your business? Are you making decisions based on a full understanding of the key metrics you should be tracking and reviewing?
The importance of financial literacy for entrepreneurs and business owners cannot be over-estimated. You have a responsibility to yourself, your team, your customers and suppliers to be educated in business financial literacy.
Below we look at why it’s so important and how, when you truly understand the financial side of your business, it becomes easier to make better, more informed decisions and to run a more profitable business.
Imagine if you were truly financially literate…
Most people start out in business because they are technically good at something. They want the freedom that working for themselves and building a business will bring them.
But they often get bogged down in everyday busy-ness rather than educating themselves and becoming financially literate.
Imagine the following:
- You understand what your financial reports actually mean.
- You know that accurate bookkeeping is necessary to produce these financial reports.
- Your financial reports and other key indicators are actually a valid tool for you to refer to.
- You are able to focus on strategies to help your business grow.
Your own level of financial literacy as a business owner or entrepreneur would make a big difference to the success of your business.
The importance of financial literacy for entrepreneurs
Becoming financially aware will provide you with:
- A solid understanding of your key financial reports
- Knowledge of key accounting concepts
- An understanding of on the difference between cashflow and profit and how to review both
- An understanding of how to better manage your debtors and creditors
- Know-how on monitoring income and expenses throughout the year
- Methods for saving time on administrative tasks that could be automated
- An understanding of the other information you need to capture and how (e.g. stock, sales conversion, open to buy etc.)
How will this benefit you?
You will be:
- Better able to understand your business with a more complete financial picture
- Less error-prone so that your financial reports will be accurate
- Better able to manage and monitor your cashflow
- Able to customise your reports to ensure you capture the right information
- Be better aware of (and prepared for) your tax position
- Able to build a solid foundational understanding to forecast growth
- Better able to understand the financial implications of decisions you make
- In a position to make better-informed decisions – without resorting to guesswork!
Your business success depends on your financial literacy
Your business does not rely solely on the dollars in your business bank account in order to be successful.
An advanced bookkeeping and accounting system is the basis for keeping your business records in order and is fundamental to your financial literacy. However, this should be accompanied by a robust education regime that is constantly revisited.
By fully understanding the financial side of your business, you’ll be a more confident leader and business owner.
You’ll be less reliant on others to simply to tell you what to do in your business; instead, you can enlist the help of financial professionals to talk through the next step options available with a detailed understanding and your eyes wide open.