Running a business is all about stories. There’s a story behind why you started your business. There are probably more than a few about how you’ve faced challenges and come out the other side. But one story not a lot of business owners understand is the story their numbers are telling them.
Financial literacy helps bridge this gap. It ensures that your numbers are telling you what has happened, and more importantly, what needs to happen. In other words, it helps you use past information to make important future decisions about your business.
While you likely have an accountant to help you put the numbers together, it’s not always as easy to apply them. Today, I’ll show you some of the best ways for business owners to stop staring at a list of numbers that don’t make sense and start actively using them for better results.
Why Financial Literacy Matters
Every business faces challenges when it comes to cash flow management, but when you have the basics of financial literacy in your back pocket, you can usually see those challenges coming before they become a serious problem. On the other hand, you’ll also be able to spot a great opportunity from a mile away!
Let’s look at the story of Howard Schultz, the CEO of Starbucks. Schultz wanted to transform Starbucks from a small coffee bean retailer into a global chain. However, during the early stages, the company faced deep financial difficulties. Luckily, Schultz understood financial principles and was able to manage his cash flow throughout the growth stage. That allowed him to navigate these challenges without sinking the business as it grew. He was able to secure funding, manage cash flow effectively, and make strategic investments that ultimately turned Starbucks into a global brand. If Schultz had lacked financial literacy, Starbucks might have never grown beyond that small Seattle coffee shop, and we wouldn’t even know about it!
There are plenty of similar stories out there, some with a successful end and some that didn’t end so well. However, keep in mind that what you consider as a success depends on your goals. For Starbucks, success was about expansion. For you (or others like you), it might be about making an impact, pulling in greater profits, or expanding the company’s divisions or services.
Staying Ahead of the Game: Be the Chess Master
Financial literacy isn’t just about managing the present; it’s about anticipating the future. Imagine you’re playing a game of chess. To win, you need to think several moves ahead. The same goes for business. By understanding your finances, you can foresee challenges and opportunities, making proactive decisions instead of reacting to crises.
Warren Buffett, one of the most successful investors of all time, is a prime example of this principle. Buffett’s deep understanding of financial statements and market dynamics allows him to make investment decisions that often seem counterintuitive but yield significant returns.
During the 2008 financial crisis, while many investors were panicking, Buffett saw opportunities. He invested in companies like Goldman Sachs and General Electric, which were undervalued at the time. His financial literacy and foresight enabled him to stay ahead of the game and continue to grow his wealth.
This line of thinking is along the same lines as the Jeff Bezos quote that talks about agility: “In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.”
Having that agility in your finances is what will ultimately allow you to grow.
Making Better Decisions: The Tale of Steve Jobs and Apple
Once you have the basics of financial literacy down, you’re equipped to make better decisions. Let’s look at the story of Steve Jobs and Apple. In the early 2000s, Apple was struggling financially. Jobs understood the importance of focusing on profitability and cash flow. He streamlined operations, reduced the product line, and invested in innovative products like the iPod (and later the iPhone). These decisions, driven by a keen understanding of Apple’s financial health, turned the company around and led to unprecedented growth and profitability.
We can contrast this with the many dot-com startups in the late 1990s. Most of them focused solely on revenue growth without understanding their underlying financials. They burned through cash faster than they made it and made poor investment choices.
Financial Literacy Isn’t a “Nice to Have”—It’s Your Financial Lifeline
So, what does it all boil down to? Financial literacy isn’t just a luxury for entrepreneurs; it’s a lifeline. It allows you to make smarter decisions, plan for the future, and guide your business toward success.
When you take the time to fully understand your finances and where you’re leading them (not where they’re leading you!), you’re not just maintaining stability—you’re discovering new opportunities that you might not have even seen otherwise.
If you want to ensure smoother operations for your business, we’re here to help! Reach out to us, or sign up for our Cash Flow Masterclass to start your journey toward greater financial literacy (and freedom!).
