Financial literacy is considered one of the key traits that’s needed to succeed in the world of business.
Strengthening your financial acumen as a business leader is imperative in today’s competitive economy. Why? Because financial illiteracy in ownership and managerial ranks can be a key weak point in managing a successful business operation.
Joe Knight, partner and senior consultant of the Business Literacy Institute and author of the Financial Intelligence book series attests to this:
“A while back, we assessed the financial knowledge of managers and executives in companies with at least 150 employees. The results were interesting. The average score was 38%, which meant most of the leaders at these companies would fail in a basic financial literacy test.”
These leaders make decisions (around money, assets and procurement) daily. Their choices have an impact on their company’s financial standing. But, they are not financially literate, according to Knight, which puts their businesses in a challenging position.
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The importance of financial literacy
Research shows that money management is a significant and indispensable component of a business leader. However, experts note also that, because it can be complex to comprehend, entrepreneurs tend to delay engaging with the subject. Here’s a few reasons why it’s important to build financial acumen:
a. Financial acumen fuels business success
Strengthening your financial acumen while encouraging and driving your team towards the company’s vision requires two important leadership traits – people skills and a solid grasp on your financial knowledge.
Creating and maintaining your company’s economic value in the marketplace requires an understanding of the numbers on your financial statement. It also requires you get to comprehend the three pillars of financial acumen that drives entrepreneurial success.
b. The three pillars of financial acumen for entrepreneurs
To understand the importance of financial savvy as a business leader, these three skills need to be acquired, sharpened and implemented accordingly:
1. Financial skills
Your core financial literacy skills can be reinforced through reading about budgeting, forecasting, and reporting processes. You can also take online courses to sharpen your acumen.
2. Business quality skills
Financial literacy impacts how you manage costs and resources. It helps you maintain order and work efficiently. If you improve your financial acumen, you can:
- Shift your focus to improve on processes
- Improve product or service quality
- Enhance the standards of your company
- Manage resources better
- Leverage technology trends effectively.
3. Global skills
Knowledge of your local, regional, and global markets and product trends helps you stay ahead of the competition. Once you understand the significance of risk and compliance, building comprehensive and viable financial growth strategies for your business could be less challenging.
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Financial acumen can help in three key areas of your business
1. Improves your money in-hand
While you may not be as knowledgeable as your accountant when it comes to deciphering your financial statements, it’s important you’re aware of matters such as your profit margins, sales growth, debt load and asset values. This type of financial awareness is helpful when making tough decisions around cash flow.
2. Enables you to be more tax-compliant
Even if you are not personally doing your company’s taxes, you should still be able to grasp tax-specific terms. It’s useful to remember that the decisions you make now will affect how much tax you save come tax season. Tax write-offs on large (necessary) expenditure could reduce the amount of tax you owe, for instance.
3. Helps with approaching the bank for finance
Approaching the bank with a solid proposal, addressing any possible financial concerns, could give you a better chance of getting finance. To assemble and present this well, you’ll need some knowledge on the value of sales projections, collateral and your business’ credit rating. Solid financial acumen will help in negotiations with banks, and other investors, should you want to expand in the future.
As a key trait needed to succeed in the business world, boosting your financial literacy should be a top priority as a business owner. Financial acumen fuels business success and managing your money well means you can get more back to put into your business. If you need help, talk to one of our business relationship managers today.