When it comes to personal finances, more than 90% of consumers in the UK feel like they don’t have enough knowledge to handle everything on their own. What’s more, nearly half of consumers feel like their bank should help them with their investments, even though it doesn’t.
While things are a bit better in the business sector, they aren’t all that great either. A recent Intuit study revealed that a staggering 40% of SMB owners don’t consider themselves financially literate. Today, we’re talking to Bobby Gill, GC Wealth owner and financial advisor about the importance of financial literacy.
What is Financial Literacy and Why is it Important?
Let’s go back to the number of illiterate business owners again. There are nearly 6 million small to mid-sized businesses in the UK, which means that there are around 2.4 million (approximately 40%) illiterate business owners in the country. You have to admit that the number is pretty high.
Seeing how more than 80% of small business owners are in charge of their own finances, the statistic from above becomes even more problematic. As Mr. Gill points out, when you own and operate a business, financial literacy can lead to revenue loss, worker layoffs, and in some cases, complete business failure.
Even if your business is small, your operations uncomplicated, and your work mostly profitable, you still need to improve your literacy because of one thing: economic downturns. Even if your market is currently expanding, at some point, it will go into recession.
At the moment, the entire world is experiencing a recession due to the coronavirus outbreak. Bobby Gill says, even though the recession will be over and the market will be stable again, you have to be prepared for these kinds of situations. One way is to improve your financial literacy.
5 Ways to Improve Your Financial Literacy
Of course, there are literally hundreds of financial items the owner needs to be concerned with. However, you can start improving your financial literacy by doing the following:
1) Make Succession Planning a Priority
Whether you know it or not, one of the most important aspects of running a business operation is having a contingency plan in case something happens to you or one of your partners. According to Bobby Gill, if you don’t have a contingency plan, you should work out one as soon as possible.
For this, you will probably need to hire a financial professional to help you with it. You can come up with a succession plan on your own and hire a professional to look at it and address the gaps afterward. Talking to a professional will also give you a perfect opportunity to learn more about finances.
2) Keep Focusing on Cash Flow Statement
Although some business owners might not be aware of it, the cash flow statement is essential to their business. After all, the statement shows you clearly the amounts of money that entering and leaving your company and help you see how well you’re managing your cash position.
Having a clear grasp of things like accounting and credits, while recommendable, isn’t necessary. But talk to any successful businessperson out there and you’ll see that they have a full grasp of cash flow statements, even if they explain it in simple terms.
3) Keep Track of Your Accounts in Real-Time
Your books need to be in order at all times. Too many business owners make a mistake of getting everything in order only when the situation requires it. Nowadays, you have dozens and dozens of software solutions that allow you to stay on top of everything at all times.
Software like the widely-used QuickBooks allows you to sync all of your banking transactions in real-time. That way, you can keep your records completely clean all year long. As Bobby Gill says, with so many options, you’re doing a disservice to your company by not keeping your books in order.
4) Discuss Everything With Your CPA
In addition to talking to your fellow business owners, you should also discuss everything with your public accountant. Some business owners tend to leave everything to their CPA without asking a single question. This is obviously not a smart thing to do.
Your financial situation may be complicated, however, you can’t allow your CPA to gloss over certain details. You’re the owner and it’s your job to know everything that’s going on with your business. Ask your CPA to simplify everything you discuss, so you understand it perfectly.
5) Review Your Financial Statements Each Month
Sitting down for a chat with your accountant isn’t a one-and-done deal. That’s because each month, you should have a sit down with them and go over your financial statements. Discuss why some business expenses are categorized differently than others.
Furthermore, have your CPA explain the balance sheet in greater detail. Talk about different accounting methods used. The point here is to absorb as much knowledge as possible. When you have a financial professional by your side, make sure to utilize the information they possess properly.
As Bobby Gill of GC Wealth points out, there are literally hundreds of financial details every small business owner should know and care about. However, you should start small if you never cared about your financial literacy before. Learn how to take care of your taxes, cash flow, and other basics before moving on to more complex things. After all, you can’t expect to write a sentence without learning your ABC’s.
About Bobby Gill
Bobby Gill, lawyer and the owner of the London-based, wealth strategy firm GC Wealth has been in the financial world for quite a while. Before establishing his firm in 2009, Bobby Gill worked as a lawyer for numerous Magic Circle firms, such as Allen & Overy in London and King & Wood Mallesons in Sydney. Throughout the years, Bobby Gill and GC Wealth have helped hundreds of high-net-worth individuals manage their wealth, assets, and cash flow.