5 Reasons Why Financial Literacy is Key for Entrepreneurs

Do you ever think about what financial literacy is?

Why it’s important for entrepreneurs?

Do you’ve any financial skills?

These questions must be answered in “yes” if you want to run successful entrepreneurship.

“Financial education is more valuable than money.”

― Mac Duke, The Strategist

We’re surrounded by people undertaking different kinds of employment to earn their livelihood. People are undertaking jobs, running other businesses, and providing services to the community to make their livings.

I’d like to ask you a question;

What do you think about the entrepreneurs running businesses that are the same or different from each other? Not based on what they’re offering but on how they are offering.

I see them differently based on their knowledge of finance. Yes, you can argue that entrepreneurs can have a lot of differences among them. You’re true. But, no matter what other differences they have or not, they can be differentiated either they’ve financial skills, or they don’t.

What is meant by financial literacy?

Financial literacy is the availability of understanding or knowledge about the business’s finances. Entrepreneurs’ financial skill set allows them to decide on the available financial information. It provides solid backing to their decisions about the company. Financial literacy is the skill set package that enables entrepreneurs to manage the business with skilled eyes.

Why it is essential for entrepreneurs?

In 2019, CB Insights surveyed the top 20 reasons why startups fail, and they came out with 29 percent saying running out of money was the core reason for their failure. Further, 18 percent had pricing and cost issues. It makes 47% of the people who failed to assess the financial aspects of their startups and failed.

We can quickly review entrepreneurs who have to close their businesses by not correctly following the company. Their decisions might be impulsive and not rational, leading to the startup’s downfall.

As an entrepreneur, not only is your business at stake, but the livelihood of people employed by the business depends on your project.

The sole purpose of any startup is to earn a good market share plus remain in profit with constant growth. A financially skilled entrepreneur is more likely to make a decision that is wise and backed by financial principles. The probability of success is more significant than otherwise.

I know few of you may say there are millions of entrepreneurs who’re running their businesses without these kinds of skills; I’d say exceptions are always there. Further, we’ve to analyze whether they had achieved what they have if they had applied financial literacy tools in their business; it’s a long debate.

“Never spend your money before you have it.”

– Thomas Jefferson, the third president of the United States

We’ve seen around us that people ignore their financial management in their daily lives, which results in issues for them in the end.

  • People around us who couldn’t make their credit card payments.
  • People around us who couldn’t have sufficient savings from their earnings.
  • People around us who couldn’t service saving to live later part of their lives comfortably
  • People around us couldn’t afford the education fees or healthcare bills.

All are good examples of bad financial management; people don’t have the financial literacy to stream their existing finances in a better way to come up with good results.

Benefits of being financially literate?

An entrepreneur running a business must be aware of its health like any other thing with an expiry date on it. If someone doesn’t know how to read the expiry date of the medicine, he’ll be in trouble for sure.

It’s the same case with financial literacy for the business. If an entrepreneur doesn’t know about his business’s economic conditions, he’ll face the trouble sooner or later.

1- It allows proper budgets

Forecasting about the business needs to be addressed timely; it can’t be done without budgeting. A financially literate entrepreneur will be keeping an eye on his budget throughout the year to achieve their preset target, whether these are profit, revenues, or expenses.

Imagine if you’re a festive supplier but don’t have the supplies before the start of the season; what will you do? You’ve missed the opportunity.

However, if you had a proper budget prepared at the start of the year, it’ll be easy to build the inventory levels in line with the budget due to your previous year’s performance.

A budget enables you to keep a check on your business and won’t let things drift away. I’ve seen many entrepreneurs go deep into the receivables or debts without realizing or couldn’t properly manage their expenses, which resulted in losses.

“We must consult our means rather than our wishes.”

― George Washington

2- It allows credit management

Most business empires or even the countries in the world are running on debt. I don’t say debt is something to worry about, but it is how to manage the debt. It can’t be done without having the financial literacy of the entrepreneurs.

It would help if you managed your debts by using them for the same purposes you’re seeking those debts.

Working capital debts: These are the loans a business acquires to run the working capital of the business or bridge the receivables gaps.

Capital loans: These are used to increase the capital of your business in the shape of the addition of machinery etc.

Vehicle Loan: These loans are mainly availed to provide motor vehicles to your business employees or, at times, for commercial purposes.

Credit cards: Credit card is expense now-pay later kind of loan. It is widespread n the people. However, it is still a loan that needs financial management.

Mortgage loans: These loans are generally requested to acquire a building for personal use or, at times, for commercial purposes.

It’s the foremost duty of the entrepreneur if he wants to be successful to utilize these debts for the specific purposes it has been approved for. Because there was a particular need for them, it would’ve added value to the business.

But, an entrepreneur with poor financial literacy may ruin all this by making some international trips, nights in the hotels, sunbaths at the beaches, and going bankrupt.

“A person either disciplines his finances or his finances disciplines him.”

― Orrin Woodward

3- It allows analysis based decision making

An entrepreneur with a master’s in financial literacy, who can adequately read the income statements, balance sheets, cash flows, and financial ratios, will be in a better position to make a proper analysis of the business conditions than otherwise.

Decision-making will be based on proper knowledge of the business and on adequate footings to improve the business positions.

“You cannot make progress without making decisions.” Jim Rohn

4- It helps the business to grow

No one should expect to achieve success in the long run if you’re not running the business by applying financial tools. You can have small wins, but it’ll be challenging to maintain the quick wins in the long run. Startups often face difficulties once not managed professionally, issues like liquidity, and ultimately fail and cease to exist.

However, startups with professional accounting systems are more likely to survive and face any adversities due to their well-thought-out business model.

5- It gives you the control

I’m a strong advocate of having financial literacy; you can control your business without having any financial knowledge, even if you’ll be doing it well, but is it true? No.

Financial literacy allows you to oversee your business by reviewing the financial statements where your business is heading. It gives you ample time before it is too late to come up with the remedies. It is hard for the employees to damage your business internally once you are good at finances.

“You must gain control over your money, or the lack of it will forever control you.” — Dave Ramsey.

How to become financially literate

There are no limitations in today’s world. If someone needs to improve, you will find multiple options.

Books: It will be hard for those who don’t like to read books like Financial Starter Kit and Rich Dad’s Increase Your Financial IQ; however, they have to, if they want to improve their financial literacy to come to the need of the hour.

Take financial literacy Courses: Different institutes offer financial literacy courses on and off-campus. To improve your knowledge, you must register for free or paid financial literacy courses. A few of the methods are given as under,

1- The McGraw-Hill 36-Hour Course

2- Financial Modeling in Excel For Dummies

Financial management tool: There are multiple financial management tools available over the internet to improve the economic understanding of the business and use them frequently to learn them well. Few of them are given as under,

  1. My Financial Toolbox
  2. Financial Accounting: Tools for Business Decision Making
  3. Facilitating Financial Health: Tools for Financial Planners, Coaches
  4. The Financial Controller and CFO’s Toolkit
  5. The Essential Financial Toolkit
  6. The New Accounts Payable Toolkit

Read financial newspapers and newsletters: Be disciplined in reading financial newspapers or newsletters to improve your skills. A regular read will often show you something relevant to your business.


Financial literacy is lacking all around the globe, it needs to be acknowledged, and efforts should be made to improve it. Startups tend to fail due to poor management of finances, mainly due to a lack of financial literacy.

Entrepreneurs can find countless benefits from financial literacy, but few of them are discussed in the article.

  • It allows proper budgets: You’ve to go by the budget book to achieve the business targets you set at the start of the year.
  • It allows credit management: Financial literacy allows the entrepreneurs to manage the business credits better to make them useful for the business than additional ad liability.
  • It allows analysis-based decision-making: An entrepreneur who can review and understand the business’s financial reports, analysis, and decision-making will be reliable and backed by the proper reasoning.
  • It helps the business to grow: Most startups lose their way due to their failure to manage their finances; once it is done, there is a higher probability for the business to grow.
  • It gives you control of the business and lets you keep a grip on your business. If you are good at finances, you’ll be better positioned to decide about them.

  • This article was initially published by the author on Medium profile.