5 Ways to Improve Financial Literacy for SMB Owners in 2022

Unless you majored in accounting or are at the helm of a financial services firm, it’s unlikely that you will have had any real formal training in financial literacy. In fact, the vast majority of people fail to receive even the most basic of education when it comes to understanding fundamental financial concepts, which may underscore why many of us struggle with saving and investing.

While this lack of understanding may not seem like a big issue to the average consumer, it will certainly begin to cause problems if you run your own company. After all, having a true understanding of your company’s financial health is pivotal if you want to make more informed decisions that will steer your company in the right direction. With this in mind, every business owner should prioritize financial literacy in their continuing education, regardless of industry. 

What is financial literacy?

Financial literacy is all about mastering your company’s finances. In order to make this possible, it requires that you have a comprehensive understanding of financial terminology, theories, concepts, strategies, and technology. All of this will give insights into your company’s finances and the elements that influence its profitability.

As you are aware, every SMB owner is required to keep a record of their transactions; however, it is what you do with this information that will make the difference. More importantly, you must identify where your money is coming from and where it is going. This means gaining a deeper understanding of cash flow management, balance sheets, and budgeting. Thus, when used effectively, financial literacy should help you achieve a better footing in your market by providing a more accurate picture of your present financial situation. Moving forward, it will also allow you to scale your operations since you will have greater control of your ingoings and outgoings owing to enhanced record-keeping, both of which will appeal to investors and lenders.

Furthermore, because financial technology (FinTech) is transforming the financial services industry at an unprecedented rate, it is now even more critical that business leaders are financially literate in order to make the most of the increasingly sophisticated instruments at their disposal. Fortunately, to get to that level, you don’t need a financial degree or to pass any accounting exam. All you need to do is gradually increase your knowledge and be prepared to use what you’ve learned throughout your operations. On that note, here are five pointers to help you get started.

Use the tools at your disposal

First and foremost, if you really want to bring your financial acumen up to speed, it’s advised to use some of the incredible tools available to you. As you know, technology has rapidly evolved the way you can manage your business operations. Most of these tools will do all of the heavy liftings for you when it comes to finances, budgeting, and planning. For example, having access to a dashboard that presents a simple overview of payment history, detailed statistics about individual clients, and automated financial reporting for taxation purposes are just a few of the ways how vcita supports SMB financial literacy. 

Use debt appropriately

Debt is one of the most misunderstood tools in the business world. Many people mistakenly view debt as something that is inherently negative, but that is simply not the case. If you are looking to expand your operations, you should brush up on how credit facilities such as loans, credit cards, and other financing agreements can help you reach your goals faster. In fact, using credit can often be more sensible when compared to using company capital, as it frees up your cash flow and preserves vital liquid assets. 

Take a basic accounting course

While you don’t need to be an expert, most SMBs cannot afford to hire an independent financial advisory department made up of CPAs and insurance/investment advisors. This means that you will likely have to wear those hats yourself. Therefore, a basic accounting course will help you to understand some of the fundamental aspects of financial literacy, such as knowing your way around a balance sheet, profit, and loss statement, and taxes. 

If you are looking for some high-quality free resources, check out the SBA’s Financial Management for a Small Business Workbook, and this Finance Essentials for Small Business course on LinkedIn (you get a one-month free trial which should be more than enough).

Start reading

Following on from the last point, self-education is critical for boosting financial literacy. Countless books break down important concepts, terminologies, and basic strategies that can help you to become more financially literate, and the benefit of reading is that you can take it in at your own pace. Here are some book recommendations in the financial literacy genre.

Understand what your business credit score is

Credit scores can be complex. However, if you want to secure a line of credit in the future or if you have plans to expand operations, you’re likely going to have to rely on a good credit score to make that possible. With this in mind, you must take some time to fully understand what your business credit score is, what affects it, and where it needs to be for you to get access to the credit you need. Furthermore, improving company credit will help you preserve your personal credit, reduce personal liability, achieve better loan terms, qualify for reduced insurance rates, and impress anybody assessing your firm – whether they’re investors, partners, vendors, or clients.

Final word

Financial literacy is an important skill you need to have under your belt as a business owner. Not only will it help you to minimize the likelihood of bad financial decision-making, but it will enable you to get the most out of your current resources by optimizing operations and increasing your chance of securing credit on favorable terms.