How Small Business Owners Can Improve Their Financial Literacy

Business owners of small companies mostly rely on personal finances/savings to start their businesses and make it a success. To ensure continued success, and to make sound financial decisions now and in the future, these business owners have to understand and adopt basic finance skills like record keeping and budgeting and use financial management tools too. So for you, as a small business owner, financial literacy is important because it will provide the knowledge, skills and tools needed to run and manage your business effectively.  

Many small businesses now are finding themselves in poor financial situations with substantial debts, and many business owners are also struggling to manage their personal finances and to reduce debt. According to the Future Africa Forum, a greater majority of the population in African countries have relatively low financial literacy levels. Also, African countries, according to S&P’s Global Financial Literacy Survey, score the worst in terms of financial literacy in the world. The most financially literate country is Botswana at 51% and the least is Somalia at 15%, according to the survey. 

So here’s why financial literacy is important and how to improve yours, but first, let’s start with what financial literacy is!

What is financial literacy?

Financial literacy is the ability of individuals, business owners, among others, to understand and to make smart financial decisions with their money. It delves into how they can learn to save and borrow money to make the most out of what they have. According to Kenton (2020), the primary principles of financial literacy include learning how to budget, track spending, effectively paying off debt, and properly planning for retirement. 

Success is not only constrained to the classroom or academic performance alone. Being able to effectively manage your finances can move you away from ‘surviving’ to ‘thriving’ in the sense that, it takes you out of living in hardships to making a better life for yourself, your business, and your family. Imagine catering for yourself, business and family without any hassle or hardship! Well, managing your finances effectively is where it is all at!

Why is financial literacy important for you, as a small business owner?

Financial literacy is important for these reasons:

1. It helps you to control your money or finances to reduce debt levels.

2. It helps you to make safe investments that match your financial goals. 

3. It also helps you to ensure that you have enough savings for a comfortable retirement.

4. It provides you with the necessary information, tools and resources to be confident about making healthy and smart financial decisions.

5. It also helps you to effectively manage the level of income you earn.

How can a small business owner become financially literate?

There are numerous ways to manage your money or finances effectively, but this begins with financial literacy. Being financially literate does not happen overnight; it requires constant practice through education. The following are ways to become financially literate:

1. Set financial goals – Financial goals can be set in the short-term or long-term. Examples of short-term financial goals are saving for an upcoming trip or saving to buy a gift box. Examples of long-term financial goals are saving to buy a house or saving to buy a car. Becoming financially literate means setting financial goals that can help you know what to spend your money on. 

2. Create a budget – After setting your financial goals, create a budget about how much money you have and how much money you want to allocate to each of your set goals. This enables you to have a spending plan for your money, so you do not overspend and also to have enough left to save and invest.

3. Use financial management tools such as OZÉ – Financial management tools enable you to keep track of your finances and how they are being used. For example, OZÉ is an Android app that helps you track the money coming in and out of your business so you can confidently make decisions about your business. Think of it like having a business advisor right on your phone. To also enhance the app experience for users, the OZÉ Coach is monitored by a team of experts who are happy to discuss any business-related issues with you and talk through solutions. With the OZÈ app, you get insights about your business and business tips on how to grow your business. Read more here: https://www.oze.guru 

4. Read online posts and articles – Online posts and articles about money management are important. It provides information about how to manage money effectively. Websites like Investopedia, Forbes and MarketWatch have useful articles about money management. 

5. Take a financial literacy course – Besides reading online posts and articles, you can also take financial literacy courses. It could be a college course, or at an adult learning centre. There are also online financial literacy courses, both free and paid, which have helpful material about financial literacy.

Now that you have a breakdown of what financial literacy is, its importance and how to become financially literate, I hope you use the above points to start managing your finances effectively, and for those who already have a fair idea, I hope it keeps you on track to reach your goals! 

And finally, become confident in owning and controlling your finances!