Becoming a successful entrepreneur takes more than just a passion for what you’re doing. In fact, it takes a wide range of skills to navigate the treacherous waters of the corporate world without the support of a company to keep you afloat.
Some of those skills you pick up as you go (time management, in particular, is something it’s tough to prepare for!) but others are best to put in place before you get started because they’ll prove significant from the outset.
One such skill is financial literacy.
Now, don’t think I’m saying you need to be a one-person accounting machine to start a business or operate as a thriving freelancer, because that’s far from the truth. However, it is important to have a strong understanding of the basics.
Why is Financial Literacy Important for Entrepreneurs?
People are Reluctant to Invest in Those who are Bad with Money
Let’s suppose that you’re a networking genius with a brilliant creative mind, and you’ve hit upon an idea that has the potential to transform the niche industry you’re targeting. That’s all very promising, but the first thing potential investors are going to ask you is what your projections look like.
If you can only offer some very sketchy figures, or you have no figures whatsoever and simply expect them to invest in the idea alone, you won’t get very far.
There are two big reasons for this:
- An idea that sounds great in an initial presentation may turn out to be deeply flawed (most ideas are bad, of course). Even if you approach investors who are very familiar with the subject matter of your proposal, they won’t be willing to give it an in-depth review just in case it’s genuinely exceptional. It’s exceedingly rare for a successful business to be the result of a revolutionary idea. Realistically, the best that people generally achieve is being evolutionary, building on existing business models to build better procedures.
- Supposing your idea truly is exceptional and revolutionary (and you’re able to show it without figures), if you’re not financially savvy, prospective investors are still going to be very concerned because they’ll doubt your ability to turn that idea into a functional business. Since it’s perfectly possible to pick up some basic financial skills in fairly little time, they’ll be justified in doubting your commitment to the concept.
If you’re just naturally bad with figures (perhaps you’re not at all academic, or you suffer from dyslexia or something similar), then you can still learn the concepts and handle discussions about profit margins and overheads. Leaving financial matters aside because you don’t consider them worth dealing with will ensure that no one takes you seriously.
There are plenty of minor tasks that you should do yourself
You may plan to leave all financial matters to someone else, whether they’re a friend, a family member, a staff member, or a hired financial advisor. That may well be the best way to handle things in the long term if you’re not good with figures and you want to focus your energy on the things you are good at, but regardless of the circumstances, there will be things you could and ultimately should do yourself.
Consider things like working out how much money you have to spend on groceries, or how much you can afford to pay an advisor. Being an entrepreneur will interfere with your income massively, reducing (or at least moving around) your free capital, and it would be counterproductive and expensive to pay an advisor to tell you whether you can afford to buy a particular sandwich, or what kind of salary you could offer an advisor (how would that even work unless your first consultation happened to be free?).
It’s also important for your professional pride and prospects to be involved. Not only will it make you feel accomplished to play your part, but it will also protect your day-to-day operations. What if your financial advisor gets ill or retires? You need to be able to keep things afloat while you figure out an alternative arrangement.
Advisers may seek to take advantage of your ignorance
Perhaps the biggest reason why you need to be financially literate to be a successful entrepreneur is that the treacherous corporate waters I mentioned earlier are full of sharks ready to attack when they sense weakness.
If you don’t understand even the simplest of financial terms, how will you know that the financial advice you receive is accurate or helpful? If you have no awareness of how financial qualifications work, will you be able to tell the difference between a legitimate professional and a scam artist?
Now, basic financial literacy won’t prevent you from being scammed or exploited — every single day, people with strong levels of expertise get conned because they’re overly trusting or simply don’t take the time to check every detail of every invoice. But it will give you some degree of protection that you would otherwise lack, and guard you against the opportunists who would generally consider scamming someone too risky but might feel that you might never notice.
Set yourself up for success
If you’re planning on starting a business from scratch (or checking out small businesses for sale in San Diego), there are few better things you could do with your time than expand your skills with some financial literacy coaching. When you think about all the reasons we’ve looked at here, and factor in that you can get free coaching from friendly volunteers, what possible reason can you imagine for not trying to learn the basics?
Even if you don’t feel at all confident about financial matters, give it a try. If it doesn’t work out for you, at least you’ll have tried — but I’m fairly sure you’ll make some good progress!