Unless you major in accounting or run a financial services business, it’s unlikely you’ve had any real formal training in financial literacy. In fact, the vast majority of people do not receive even the most basic education when it comes to understand fundamental financial conceptswhich may explain why many of us find it difficult to save and invest.
While this lack of understanding might not seem like a big deal to the average consumer, it will definitely start to cause problems if you’re running your own business. After all, having a true understanding of your business’ financial health is essential if you want to make more informed decisions that will steer your business in the right direction. With this in mind, every business owner should prioritize financial literacy in their continuing education, regardless of their industry.
What is Financial Literacy?
Financial literacy is about getting your business finances under control. To make this possible, you must have a thorough understanding of financial terminology, theories, concepts, strategies, and technology. All of this will give you insight into your company’s finances and the elements that influence its profitability.
As you know, every SME owner is required to keep a record of their transactions; however, it’s what you do with that information that will make the difference. More importantly, you need to identify where your money is coming from and where it is going. This means gaining a deeper understanding of cash flow management, balance sheets, and budgeting. So, when used effectively, financial literacy should help you better position yourself in your market by providing a more accurate picture of your current financial situation. In the future, it will also allow you to expand your operations since you will have better control of your inflows and outflows through better record keeping, which will appeal to investors and lenders.
Moreover, because financial technology (FinTech) is transforming the financial services industry At an unprecedented rate, it is now even more essential that business leaders have financial literacy in order to make the most of the increasingly sophisticated instruments at their disposal. Luckily, to reach this level, you don’t need a finance degree or pass an accounting exam. All you have to do is gradually increase your knowledge and be prepared to use what you’ve learned throughout your operations. On that note, here are five tips to get you started.
Use the tools at your disposal
First of all, if you really want to brush up on your finance savvy, it’s a good idea to use some of the amazing tools available to you. As you know, technology has rapidly changed the way you can manage your business operations. Most of these tools will do all the heavy lifting for you when it comes to finances, budgeting, and planning. For example, having access to a dashboard that presents a simple overview of payment history, detailed statistics on individual customers and automated financial reports for tax purposes are just some of the ways how vcita supports SME financial literacy.
Use debt wisely
Debt is one of the most misunderstood tools in business. Many people mistakenly view debt as something that is inherently negative, but that is simply not the case. If you are looking to expand your business, you should educate yourself on how credit facilities such as loans, credit cards, and other financing arrangements can help you reach your goals faster. In fact, using credit can often make more sense than using company capital because it frees up your cash flow and preserves vital cash.
Take a basic accounting course
While you don’t need to be an expert, most SMBs can’t afford to hire an independent financial advisory service consisting of CPAs and insurance/investment advisors. This means that you will probably have to wear these hats yourself. Therefore, a basic accounting course will help you understand some of the fundamentals of financial literacy, such as knowing a balance sheet, profit and loss statement, and taxes.
If you are looking for high quality free resources, check out the SBAs Financial Management for a Small Business Workbookand that Finance essentials for small businesses courses on LinkedIn (you get a one-month free trial, which should be more than enough).
As an extension of the last point, self-education is key to building financial literacy. Countless books break down important concepts, terminologies, and basic strategies that can help you gain more financial knowledge, and the benefit of reading is that you can pick it up at your own pace. Here is some book recommendations in the financial literacy genre.
Understand what your business credit rating is
Credit scores can be complex. However, if you want to get a line of credit in the future or plan to expand your business, you will likely need to rely on a good credit score to make this possible. With that in mind, you should take some time to fully understand what your business credit rating is, what affects it, and where it needs to be in order for you to have access to the credit you need. Plus, improving business credit will help you preserve personal credit, reduce personal liability, get better loan terms, qualify for lower insurance rates, and impress anyone who reviews your business. whether investors, partners, suppliers or customers.
Financial literacy is an important skill you need to have under your belt as a business owner. Not only will this help you minimize the likelihood of poor financial decisions, but it will allow you to make the most of your current resources by optimizing operations and increasing your chances of obtaining credit on favorable terms.