In honor of Financial Literacy Month, we’ve devoted the month of April to talking about financial literacy. In the last post, we talked a bit about what financial literacy is and how it can help your business. Today, we’ll take a closer look at the consequences of financial illiteracy, and what it can mean for your business.
What is Financial Literacy? Just as a refresher, the President’s Advisory Council on Financial Literacy defines it as “The ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” What that boils down to is a basic knowledge of how money works in the everyday world and how to make it work to your advantage.
Most people are not taught financial literacy in school. Our education system has long focused on what they used to call the “Three R’s:” Reading, Writing, and Arithmetic. While changes to the education system have gradually changed that focus, many people are still not taught how to manage their money in the real world. While some schools may have taught you how to count out correct change or balance a checkbook, balancing a budget is something a lot more complex and something many people simply aren’t trained to do.
Consequences of Financial Illiteracy
So what happens if you are NOT Financially Literate? That’s the big question, and the answer, of course, is that it depends. For some people, not being financially literate may simply mean that they miss opportunities they might otherwise have taken advantage of. For others, not being financially literate may mean the difference between financial success and massive debt, or even bankruptcy.
For small businesses, the consequences of financial illiteracy can become catastrophic. Small businesses don’t have a lot of margin for error when it comes to their finances and financial literacy can mean the difference between a business that succeeds and one that fails. If you look at companies that have shown high growth over the years, you can bet they had some very financially literate people working behind the scenes!
Even if you’re not the one keeping the books for your company, you have to, at a minimum, look at your reports. Your financial reports are snapshots of your company’s growth – or decline, and you must be aware of what’s going on at all times in order to make sound decisions. If you’re relying on doing the math in your head based on sales, your business may go over budget, or you may not have cash flow on hand when you need it to make payroll or purchases.
Financial Literacy is also knowing when to ask for help. No matter how financially literate you may be, most small business owners just flat out don’t have the time to do all the bookkeeping work for their business, and most of them we talk to, don’t want that job! That’s where having a good bookkeeping partner comes in handy.
While some larger companies may have in-house bookkeeping departments, small business owners have to handle the budget themselves, or find help from a service like Virtual Bean Counters.
Virtual BeanCounters serves business owners and entrepreneurs with remote web and cloud-based finance applications. Let our professional accountants run your daily, weekly, or monthly bookkeeping and accounting, so you can run your business. Contact us by phone at (913) 649-1040 or click here to visit our Contact page.