Financial literacy is an important aspect of a business. Financial literacy is about knowing a your finances, how the money is made, how it’s invested, where to invest it and how to manage and save money. A sustainable business relies on a strong foundation of financial stability. An entrepreneur running a business has to be aware about his resources and finances and should have a basic understanding of managing those finances and hence courses like an MBA in finance become important to study to be well acquainted with the basics of financial management. But it’s not necessary though to have an executive degree or masters’ degree like MBA, having knowledge of basic financial literacy would also work. Literacy is an important aspect of human development and financial literacy is one of the most important aspects for both personal as well as professional life. It is even more important when it comes to running a full-fledged business. The OECD definition of financial literacy says that it is “A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial well being”. So here are some of the important reasons for an entrepreneur to be financially literate.
- Being financially literate is important to understand the difference between ones personal and professional finances. This helps in better management of money for one’s personal needs and have sufficient amount for running his or her business transactions.
- Financial literacy helps entrepreneurs to manage their funds which would ultimately help them to gauge any future risk involved in taking up new contract or signing any new business deal. It would help to anticipate future demand and subsequent risk management in difficult situations.
- Financial literacy helps in optimization of business performance by forming policies and strategies in accordance with the financial capability of the organization. The policies so formed would be less risky and more effective.
- Financial literacy also helps the entrepreneurs to understand the financial and fiscal policies of the country where the business is setup and make financial decision for his business accordingly to keep up with the changes taking place in the business environment.
- It is also necessary to understand the risk involved with the current polices and running of business. This requires financial literacy it helps in a deeper understanding of the same. Entrepreneurs can take appropriate precautionary measures to help mitigate the risks involved.
- Financial literacy helps entrepreneurs to achieve competencies and know whether financial experts and services are required for running ones business sustainability or not. It helps entrepreneurs to achieve personal and professional well-being which is important for every individual.