fbpx Skip to main content

Financial literacy is an essential ingredient in achieving small business success. As former Minnesota Governor Tim Pawlenty stated, “Financial literacy is an important part of avoiding financial mistakes and planning for a strong, secure financial future.” Digging deeper, Daymond John, CEO of FUBU and a Shark Tank host said, “Many entrepreneurs struggle to understand payroll taxes, health care and other thorny issues… In other words, they don’t have the undertanding to scale their businesses and attract investors.” That’s why financial literacy matters. 

What is Financial Literacy 

The term “financial literacy” encompasses understanding all elements of your business finances and all the factors involved in achieving positive cash flow and profitability. That includes understanding financial terminology, concepts, theories, and practices, and the ability to read and use financial statements to make crucial decisions and achieve positive impacts for the enterprise. Making good decisions and achieving positive impacts are the key reasons why financial literacy is critical. 

Why Financial Literacy Matters as a Small Business Owner 

As a small business owner, you must know where your money is coming from and where it is going. Financial literacy is required so you can successfully manage cash flow. It is essential to make good spending decisions, including capital expenditures for equipment and machinery, purchasing needed inventory, hiring additional employees or upgrading a workforce, investing in marketing, and dealing with tax obligations. Being financially literate enables a small business owner to better evaluate investment opportunities, allocate resources effectively, and identify, assess, and mitigate monetary risks. It is a key factor in attracting investors and partners and fueling business growth. 

Financial literacy is crucial because it leads to understanding the impact of your business and monetary actions and helps make more informed decisions that will impact your profitability. It is a critical component of budgeting and contributes to business financial efficiency. 

How to Improve Your Financial Literacy 

It’s not sufficient to know why financial literacy matters. It is more critical to act to improve your financial understanding within your own small business. Here’s how: 

  1. Be sure that you know all your numbers. Use your knowledge to develop good budgets and then ensure that the company stays on track. 
  2. Create or utilize reliable systems that work well for the business. 
  3. Thoroughly understand your business’s financial statements including key financial ratios and how to analyze ROI
  4. Have a deep understanding of cash flow. Understand how to make good financial projections. 
  5. Understand the importance of your credit report and how to read and interpret it. 
  6. Understand how to utilize debt strategically.
  7. Understand taxes and how they will impact your business. 
  8. Know when to outsource functions like accounting and human resources to make your business simpler and more efficient.                                                       

Choose an Expert Outsource Services to Assist You  

Choose an expert payroll service, Palmetto Payroll, to assist you with your payroll system. We have offices in Columbia and Charleston, serving over 300 business owners statewide. We offer tailored solutions to save you time and money so you can thrive and grow, including payroll, tax depositing and filing, management reporting, Human Resource Services, and timekeeping services.