Plenty of people have really strong ideas for a business that nonetheless do not seem to really hold up under scrutiny, or in the cold light of day. This often comes down to the business leader not having quite the right amount of financial literacy to be able to run a business effectively.
If you are concerned that you might need to do some learning around this, or you are feeling out of your depth, then the good news is that you can always improve it, and can always learn more.
In this post, we’ll look at how you might be able to make your business more of a success by improving the financial side of it. All of the following ideas could come together to form a much more successful and engaged kind of business.
Why Financial Literacy Matters
First though, let’s consider in a little more depth why it might be important that you know more about finances and how they work. While a lot of entrepreneurs are experts in their craft, many often struggle with the numbers.
But you need to have both camps sorted if you are going to run a business effectively, and this is the kind of thing that is really going to be very helpful. If you want to make a more informed decision about keeping your business healthy, that is something that you can easily achieve, and it’s all about making sure that you are financially more aware.
In an essential way, that means understanding where your money is coming from, where it’s going, and how to plan for the future. If you can do all that, you are going to find that you have much more financial literacy.
Essentially, it will give you a better ability to control and manage your cash flow, know how to price things more smartly, and give you a lot more confidence in making financial decisions. All of that also means that you are going to have much less stress in your daily running of the business as well. Simply put, knowing the numbers helps you sleep better at night.
So as you can see, financial literacy is hugely important, perhaps more so than you might have thought.
Cash Flow
This is one of the main areas where you are going to need to understand what’s going on. People often get confused about cash flow. The main thing to remember is that it is not the same as profit.
It’s a track of when money enters your business and when it leaves, and coming to a fuller understanding of this process is vital if you want to have a business that actually operates well day to day. You can be profitable on paper and still run out of money if you are not careful, so you’ll need to use a simple cash flow forecast to track it monthly so you always have some cash available. Otherwise, you won’t be able to spend it on what you need to spend it on.
Profit & Loss Statement
Your P&L statement shows whether you are actually making any money – and if so, just how much. It effectively breaks down revenue, the costs of goods sold, and your operating expenses, and gives you your net profit. This is where you can actually see how profitable your business really is, and it is often a shocking sight when you first look at it.
So you should make sure that you are doing all you can to produce this report and then to review it regularly. If you can do that, you’re going to have a much better sense of what is going on. For this report to be accurate and effective, you’ll have to literally keep receipts, and it can help to understand itemized versus standard receipts if you are doing this for the first time.
Budgeting
You will have heard about budgeting, and hopefully you already do it to some degree. But if not, you should make sure that you are aware of exactly what it is – and what it isn’t. A budget is not a restriction – it’s simply a plan, and it involves everything that you think you will need to spend in the future. It helps you to anticipate all costs, set revenue goals and avoid overspending, and as such it’s one of the most useful tools available to you on the whole.
Even a very basic monthly budget can help you to keep your operations aligned with your financial goals, so this is important to bear in mind. Make sure you have a budget and that it is fit for purpose. That is a really important part of all of this.
Taxes & Compliance
It probably goes without saying that you can’t really ignore your taxes, and that you need to remain compliant at all times. If you are not doing this, it could mean that you are going to be in much more trouble, and that can be a really worrying trend to find yourself in.
You don’t have to do your own taxes, but you do need to plan for them, and that means setting aside a percentage of your revenue to help you pay for them. You’ll need to understand what deductible expenses you have and ensure that you work with a professional, so you can avoid any nasty surprises. If you can do that, it will help a lot.
Pricing & Costing
Finally, make sure that you are aware of how much you are charging, and especially that you are charging enough. Too many people don’t charge their customers enough, and the end result is that they are going to be a lot more likely to run out of money. It’s really that simple.
So, make sure you avoid this fate and that you are doing everything you can to charge correctly and accurately. If you can do that, you should find that you are much more able to succeed financially on the whole.
Financial literacy: Final thoughts
Financial literacy is not just a nice-to-have, it is one of the core pillars of a sustainable business. When you understand numbers and finance, that gives you the power to make smarter decisions, reduce stress, and confidently navigate challenges as your company grows. This can be managing cash flow, setting the right prices, creating a reliable budget, or simply staying compliant with your taxes.
You do not need to become a financial guru overnight, but taking small, consistent steps to improve your knowledge can make a significant difference. The sooner you take control of your business finances, the sooner you will feel more in control of your future. And that confidence is worth its weight in gold.
