Why Financial Literacy is Important in Small Business
What is Financial Literacy?
Being financially literate is to possess the knowledge and skills needed to make informed financial decisions.
Why is Financial Literacy Important?
All businesses operate around finances and having a confident understanding of concepts including saving, investing and debt that leads to an overall sense of financial well-being and self-trust is crucial.
As a business owner, if you do not have a clear picture of your business, you are more likely to make risky investments that could ultimately cost you compared to someone who has taken the time to gain the knowledge and skills needed to make informed decisions.
Ways to Increase your Financial Literacy
You don’t have to take college, or even paid online courses in financial literacy to improve your knowledge. The internet is full of free reading and resource guides to help you achieve a better understanding of finance. Researching the main concepts of financial literacy can increase your knowledge tremendously. Adding a bookkeeper to your team can also improve financial literacy. A bookkeeper will not only keep your records up to date for you, but they can also be a second opinion when it comes time to make financial decisions.
Basic Finance Terminology
1. Accounts Payable (A/P)– Money that your small business owes to suppliers and creditors
2. Accounts Receivable (A/R)– Money that is owed to your business
3. Cash Flow– The amount of cash that moves through your business
4. Bookkeeping– The recording of your small business financial transactions
5. Gross Profit– The amount your business has made in total sales minus the expenses
6. Asset- Any equipment or item that is owned by your business
7. Liability– Your small business’s legal obligation to pay (ex: Credit card, A/R, payroll, taxes)
8. Profit and Loss Statement– This statement will show your business’s bottom line
9. Expense– The amount of money your small business spends on something
10. Income– The amount of money your business receives for goods or services sold.
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