Every business person needs to consider the importance of finance. But not only the ability to count money matters, but even a child can also cope with the task successfully. The understanding of such moments as business financing, investments in a business, timely tax payment, correct accounting of profits and expenses are critical for success. The absence of financial literacy often lets the people in business down, which is why many of them cannot reach a decent level of benefit.
Why Financial Literacy?
As it is possible to guess, financial literacy ─ is a particular knowledge and abilities of reasonable money management, which are necessary for each person in the business. These skills are vital for making competent decisions concerning finances, thanks to which all business goals can be achieved. It includes knowledge about credit systems and taxes and how everything works. Financial literacy will help the entrepreneur reduce the unscheduled leak of money and allocate all available resources to increase the productivity of the business and its profit.
Well, it is unfortunate when people in a business trust the financial affairs of their accountants fully. Of course, no one has abolished trust. But their financial illiteracy in these cases can have adverse consequences, such as deception, bankruptcy, and many other bad things. To prevent it, take care of financial literacy even before starting business began to function. It is best to do this at the stage of business creating ideas, or when drafting the business plan.
Death from Financial Illiteracy
So, what is the main reason for many business losses? First, most people in business don’t even want to devote enough time to learn financial management. They have little knowledge about proper financial planning and control – these activities happen occasionally. Therefore, financial problems occupy the first place in the list of the reasons for start-ups and business project deaths.
Quite often, people in business take care of their mentality. Many of them say they “understand nothing in finance,” or they are “better than that.” Of course, everyone can decide for oneself, but in such a case, their business never became profitable. Life demonstrates that it is financial literacy that ensures the business survival of the entrepreneur.
Financial literacy basis includes boring accounts, balance, debit, and credit, invoices, understanding of tax payments… “It is so boring!” you will say. Alas! The experience shows that the person who creates a financial picture of one’s business honestly and precisely year after year turns out to be able not only to earn but also to pull the business out of debt pits during the harsh crisis times. All in all, sooner or later, the people in business understand that their profits are directly connected with financial discipline.
Inability to count money, lack of understanding of spends and revenues the business may bring sooner or later will cause higher costs and lower revenues, including forced price cuts, the development of ill-conceived loyalty programs to keep the consumer.
This Terrible Word “Budget”
Where does the financial literacy of a business person begin? With a clear understanding that business is a cash flow in an oval form, which can be anything – bread, milk, content, services. And to “see” this flow, you need to overcome the laziness and maintain basic accounting, which includes, among other things, income accounting, expenses and cash flows, calculation of profits, and taxes, of course.
Financial information may seem complicated to you, but it’s just another way to look at how professional managers plan and operate their organization. Budgets contain income and expenditure information. You can look at the budget of your enterprise, that is, your revenues and planned expenses for a particular month.
Do you think that budgeting is a terribly expensive pleasure? Well, it’s not. You can learn how to use some budgeting tools – even simple ones – on your own to plan and monitor your financial resources successfully.
Learn How to Count Your Money
Much of the financial information you get as a manager relates to costs. This information is essential because it is the basis for you to make important decisions. Determining the costs associated with an item, service, or activity can be difficult. To obtain information about prices, use many different approaches to determine how costs are calculated and how they are expressed in numbers.
These approaches involve different methods of calculation, but all of them have one common purpose: to provide you with the information you need to make informed and rational decisions. Cost management can help decide whether it is appropriate for an organization to produce a commodity or provide a service, and can be used to support pricing decisions and policy.
We Go to Break-Even
Break-even analysis is used to make financial decisions together with other cost accounting approaches. It’s a very efficient and powerful method to help determine how much you have to produce (goods or services) to cover your costs.
You may also be interested to know how many items or services you should sell in order to reach a level of “break-even,” at which you will not receive profits, but also will not bear losses. It means, at which point you will only cover all your spends. It is achieved when revenue is equal to costs (constant and variable).
This level of activity is referred to as the point of zero profit or break-even point (BEP). It can be calculated as BEP = constant cost/unit margin.
How to Improve Financial Literacy?
It is necessary to learn constantly, to improve the skills, to acquire new knowledge. There is never much knowledge, especially in our age of accelerated technologies. When everything is constantly changing, there are always some improvements, the implementation of new projects and ideas. To keep the business in iron fists and prevent it from turning aside from profits, entrepreneurs need to keep their ears and minds open.
Also, don’t forget about additional security. You may lose money not only because of one’s illiteracy but because of some criminal phishing schemes. So, you need to take care of better protection. For example, TotalAV antivirus provides a quite efficient anti-phishing protection, which will come in handy when your business begins to grow.