Among the myriad of things entrepreneurs need to know that are necessary for their business to thrive and succeed, financial intelligence comes top. This is because numbers is the language of every business. It is therefore imperative that entrepreneurs have a sound understanding of how to manage the business’ financial resources as many businesses have crashed due to financial ignorance.
Here are 5 reasons every entrepreneur needs to be financially intelligent:
Financial issues are ranked the second cause for business failure. 6 out of 10 businesses fail as a result of money problems. Too many businesses have failed because the entrepreneur didn’t understand finance and its implications. Financial issues not only talks about raising capital, but efficient management and optimization of the financial resources of a business. Entrepreneurs should therefore concern themselves with financial intelligence to place the business in a good financial position.
To succeed in business you need to understand the language of finance. If you don’t know your numbers you don’t know your business. Numbers describe a business more accurately than any other form of communication. If you cannot communicate in numbers you, you might as well not venture into entrepreneurship. To communicate effectively, you not only have to know the numbers, you must understand what those numbers are telling you.
Because investors are financially smart too. If you intend to raise money from investors, it is imperative that you know your numbers and know them well. No investor is interested in your idea as much as they are interested in your numbers. If you cannot clearly illustrate the viability of your idea through your numbers, you won’t be getting any fund from them. You cannot romance investors out of their money.
Because preparing financial statements isn’t enough. Many entrepreneurs get carried away when they have professionally written financially statements. They soon forget that financial statements don’t reveal everything about the business. Consider financial statements as data which you have to process or analyze to generate insights. Therefore preparing financial statements is just the first step in the process. Financial intelligence requires that the entrepreneur understands the implications of those numbers on the health of the business.
To make sound predictions and judgment calls when making decisions. As said earlier, financial statements is just a first step in the process. Your ability to make near accurate predictions and sound judgment calls is dependent on your capacity to understand the numbers of the business. Once an entrepreneur is financially intelligent, making sound financial predictions and decisions won’t be a hassle.
This article is part of a series of conversations around helping entrepreneurs in Nigeria become financially intelligent. This subject will be discussed more extensively at the June 2017 Startit Academy, themed, Finance Fundamentals for Startups & SMEs. For more information about the event and registration, please click here.