What does it mean by being financially literate?
If you’re thinking about starting a business or are in the process of starting your very first one- chances are you’ve heard about it. The “importance of financial literacy”, as much as that phrase gets thrown around it’s seldom explained well.
So let’s put a foot down on what defines financial literacy. There’s the knowledge of basic financial terms such as investments, capital, risks, loans, insurances, and everything in between. An understanding of economic management is also needed.
But the importance of financial literacy doesn’t come from those simple fundamentals. Certainly, there’s more than things you could google in under ten minutes right? Well, yes, any business relies on finances for operating. The knowledge of finances is crucial, thus, to its operation.
If you’re going to run a business, it is likely to face a gazillion more roadblocks if you lack the financial knowledge for running a business. There are accounts to be kept and salaries to be released. There are expansion and lay-off, two sides of the same coin. There are investments to be made.
None of these can be accomplished with acceptable success rates without first having a strong grip on the finances. Financial Literacy is important because being financially literate simply means you possess the skills to handle the tricky situations that might come your way as a business owner wherever finances are concerned.
The importance of being financially literate
The true importance of financial literacy stems from the three stages of a business being set up. It encompasses all stages of a business’s lifespan. From being founded to scaling up and finally finding a balance and maintaining the flow.
While business is being set-up or founded. You’ll need investment for your idea. In order to even get investors on board, you’ll need a strong financial plan for how your business will generate revenue. Also your exit strategy.
Alternatively, let’s say you have all the capital you could ever require. In order to successfully and efficiently use it to set up a business, you need to be financially literate. There is no option other than maybe hiring help to do the finances for you. Even then, it’s a good idea to educate yourself as it’ll help in business decision making.
Speaking of which, making the right business decision a few times will lead to success. With even moderate initial success comes scaling- most businesses scale up with time. In order to expand, get more employees, hire experts, and acquire a more suitable office space and such. You’ll need to financially literate.
Now, once that business is running and scaled up. The hard part comes in when you have to keep that trajectory upwards- continue inching up. If you can’t maintain it- at least don’t lose your current numbers and keep the business stable. Less than fifty of the fortune 500 from 1999 are still active today – that should speak for itself.
Financial literacy is important when you have to make hard choices. What if you want to invest in research and development and create your own IPs? That comes with different financial constraints to maybe hire more employees. Or laying some people off? Corporate ties and deals? All of it.
If there is a need for expertise in a niche to start a business associated with it. There is undoubtedly an equal need for financial knowledge and literacy to go with it. In order to be a successful business owner, you should be financially literate.
