4 Reasons Why Entrepreneurs Should Improve Their Financial Literacy

Are you wondering if entrepreneurs like yourself should enroll in an ACCA training course?

The quick answer: yes, you must.

ACCA training courses conducted by reputable ACCA Training Dubai institutes will help you become financially literate — and financial literacy is an attribute anyone running a business must have.

Read on to know more about financial literacy and the four reasons why entrepreneurs must improve their own.

What Is Financial Literacy?

Literacy, in general parlance, means the ability to read and write. When used in contexts other than reading and writing, it means having knowledge about or competence in that thing in which you are literate.

Financial literacy, therefore, means having knowledge or competence about financial matters. In the context of business and entrepreneurship, it usually means:

• the ability to read and understand financial statements and accounting reports;
• the competence to make decisions based on financial analysis; and
• the knowhow to make such financial statements and accounting reports yourself.

For instance, to know how much a product or a service will cost to produce, a business owner must know how to conduct product costing and valuation analysis. To learn the impact of buying a warehouse on their cash flow, a business owner must perform a cash flow analysis.

There is a lot more an entrepreneur can learn and glean from their financials. Still, they need to be financially literate to create relevant financial analyses and make decisions based on those.

Financial literacy, therefore, is having a thorough understanding of financial and accounting concepts. It is also about having skills that let one take advantage of or make decisions based on such knowledge.

Reasons Entrepreneurs Must Be Financially Literate

The following are reasons you must be financially literate.

1. Make Informed Business Decisions

You can make wise business decisions if you know what information you’re looking at and what it is telling you. Likewise, if you know how to arrive at the information you need, you can make decisions based on what is factual instead of what you wish were true.

As a case in point, suppose you are launching a new line of designer bags. You can arrive at an accurate product cost if you know management accounting. Likewise, you can analyze and then decide how much you need to charge for it.

After coming up with a product cost and deciding on the product price, you need to determine your marketing spend on the new product. If you know —from your valuation and analysis — your potential future earnings from your new line, you will be able to decide on how much to spend on your marketing.

If it can bring in a lot of revenue, a higher marketing cost may be warranted. Of course, you cannot get carried away without first analyzing the potential impact of your marketing activities on your cash flow.

So, when you know what to look at, what to look for, how to interpret your financial data, and how to bring all of them together, you can make wise business decisions.

2. Maintain Control

Most entrepreneurs start by doing everything themselves, but eventually, they delegate and designate to scale. Even those with financial knowledge will hire people to keep their books and manage their accounts.

Even at this stage, however, financial literacy is essential. This way, when your accountant gives you a report, you will know what it says without your accountant having to tell you.

Your financial literacy will also help keep your people honest. When your people know you can run your financials yourself, they will be less likely to give you the runaround.

Ultimately, having business financial knowledge and competence will help you maintain and keep control over your business.

3. Properly Allocate Funds

The failure rate of small businesses was around 90% in 2019, said the U.S. Small Business Administration. One of the business owners’ oft-cited reasons is money running out.

While this could be because of the lack of or slow sales — no revenues mean no money coming in — this can also be due to funds misallocation. Someone who has no financial know-how could be spending on things they believe will bring in revenue. Sadly, an analysis of their financial records could quickly disabuse them of their wrong assumptions.

With financial knowhow, you will be capable of pinpointing which resources directly contribute to your revenues and to what extent they do so. This will help you prioritize spending on things that have a proven and demonstrable impact on your bottom line.

4. Win the Trust of Investors and Stakeholders

When it’s time for you to scale up, chances are high you will need equity capital. However, to win investors, you must answer their questions. You should be comfortable talking about things like your forecasted revenue and your valuation.

Once you have shareholders, you will need to continue reporting to them about the state of the business. You will need to communicate how the company is doing and how you are utilizing the capital you raised.

Whether talking to would-be investors or existing stakeholders, a CFA training Dubai course will hone your ability to talk about financial statements and projections.

Being a certified financial analyst and financially literate will improve your chances of getting investments and your shareholders’ trust in your ability to manage and grow their investment.

Financial Literacy: You Need It

It is as Tony Robbins said. Execution trumps knowledge. However, how do you execute if you do not have financial knowledge?

If you want to gain business insights, maintain control over your business, allocate funds correctly, and talk about your business’ financial state comfortably, you need financial literacy. Your execution, business growth, and, ultimately, your success depend on it.

Become financially literate with ACCA or CFA training classes in Dubai.

Contact us to enroll now.