In simple terms, financial literacy means knowing the language of Finance. Now more than ever, it is very important to understand that there are layers to this definition and its application to improve financial decisions. According to the OECD, Financial Literacy is “A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well being”.
Bringing this closer, with the current struggle of the world economies, as a result, of the Coronavirus which led to halting in businesses, the continuous fall in the price of oil and many more, all this proves there is a need for entrepreneurs to under and implement financial literacy as there will be a shortage in funds and tough times ahead.
This is what financial literacy guides us on, it helps the entrepreneur to make better decisions that ultimately enriches him, his shareholders, employees and stakeholders over time. The following is a list of “financial needs for entrepreneurs”:
1. To distinguish between personal and business finance; acknowledge that your business and you are separate people, extremely separate. Hence treat them as such!
2. To be a competitive buyer of financial services, understanding financial products, their costs and risks.
3. To anticipate the business’ future financial needs under alternative scenarios. Just like we have now.
4. To access the risks to which the business is exposed and prepare appropriate responses.
5. To understand the decision-making process of financial providers, and thus appreciate how the business becomes creditworthy or investment-ready.
6. To relate the business’ financial needs to a country’s regulatory and fiscal framework – to appreciate the notions of regulatory and tax efficiency.
7. To exercise financial management – to use financial information to analyze business performance and create policies and controls that optimize this.
Lastly, businesses are designed for risk. Don’t let anyone tell you otherwise, your risk management game, especially in an environment like Nigeria, needs to be on point. Financial literacy helps you become more of a Roger Federer in his prime at this (managing risks).
