Financial Literacy Among Entrepreneurs

financial literacyAny person who is running their own enterprise and is accountable for it can be called an entrepreneur. But not all entrepreneurs can be called financially literate. Financial literacy goes beyond just knowing what goes on in the financial world, it is about understanding finance so that effective decisions about the business can be reached.

With the current economy, there is undoubtedly a need to improve financial literacy especially among those in the business sector. You may have the best business idea or the most innovative products in the market but if you do not have the essential financial knowledge in managing the money your business makes, you are in for a rough ride.

Not everyone who started or who is just planning to start their business has taken up finance courses. Sure, there may be some subjects which taught us the basics of accounting and personal finance but would that be enough to successfully run a business? Financial literacy is a skill which can be acquired. You do not have to be a certified accountant but you need to be able to understand how well your finances stand despite a volatile economy.

Entrepreneurs should set aside time to have a handle on the financial perspective in running a business. It is not enough to be blinded by opportunity. Just because you know how good you are in marketing does not necessarily mean that your endeavor will succeed. It would not unless you know how to make effective decisions regarding the financial aspect of your business.

The fact is, most entrepreneurs rely on accounting professionals to handle the financial side of the business. It is not wrong to delegate this task. In fact, it just might save you time if you do so. However, since you are accountable for your own business, it should go without saying that you have to know enough about your financial statements and whether your company is generating profit or if it is just making enough to break even. When it comes to the money generated by your company, you should be at the forefront and not the sidelines.

There are numerous obstacles which can impede financial literacy. Some of the most common are:

  • You hate numbers and you started a business because of rising unemployment or there’s a great opportunity for your ideas. You know you could hire someone else to do the math for you, even if it is your business and your money you’re putting on the line.
  • You pretend to understand what your accountants are explaining to you about your financial statements because you don’t want them to think you don’t know anything about finance.
  • You simply do not have time. Between juggling your business, your family and friends, you feel that your finances would be better off handled by your accountant or bookkeeper.

An entrepreneur who could understand and assess their business’ own financial report would be able to ask appropriate questions related to their finances and would not be left in the dark. As the owner of your own enterprise, financial literacy is important so that you would not be the last one to know if your business is folding or growing. With financial literacy, there is an increased potential for your enterprise to develop into a large corporation.

4 Comments Financial Literacy Among Entrepreneurs

  1. Ken Kaufman

    Amanda,

    I think you have missed two critical obstacles to obtaining financial literacy. The first has to do with the fact that most companies are not generating the right financial information at the right time for the right people. I don’t know the exact percentage, but I would guess more than 90% of the small and medium-sized businesses in the world are just not getting the right meaningful, insightful, precise, accessible, comparative, and timely reports they should (usually daily, weekly, and monthly are the appropriate intervals of frequency).

    Secondly, even if they were getting this information, most business owners cannot acquire the years and years of experience and education that financial executives have. I have found that getting the right reporting in place and then having a finance executive analyze and lead a strategic discussion on the performance of the firm on a monthly basis drives financial literacy to where it needs to be.

    I just thought I would add my $0.02 to your advice and suggestions. Thanks for the article.

    Ken Kaufman

    Reply
  2. Georjina

    Amanda,
    I wholeheartedly agree with Ken on the two obstacles you’ve missed, however for different reason. What has been missed in your overall article is the fact that small business owners are financially literate to the extent they need to be.

    Unless trained as an accountant or other financial professional, the average small business owner has a more immediate use for financial literacy – financial profitability. They hire financial professionals to analyze those numbers to determine what needs to change and what to do next.

    Their interest is not based on theory of running a business, they need facts based on the reality of their day-to-day and long term profitability.

    Your article is nice for theorists, not realistic for those actually operating a business on a day-to-day basis.

    Reply
  3. Mike

    A key part of financial literacy is understanding debt and how to be an effective borrower. Your accountant and attorney are integral components of any borrowing activity. You also might consider hiring a professional borrowing consultant to be a pathfinder for your loan and be on your side. I’m not talking about a mortgage broker but someone who looks out for your business borrowing interests.

    Reply
  4. yakubu faiza

    i also agree with the above isuues on financial literacy.but the question is,how many of enterprenuers with the knowledge of financial literacy really or practicably apply it to their businesses.i think we should talk extentively on the needs and benefits of financial literacy.

    Reply

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