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An Entrepreneur’s Guide to Improving Financial Acumen

There’s no proprietary pedigree or singular recipe for what it takes to be a successful entrepreneur. Entrepreneurs are as unique as any other random group of people on the planet. However, there are certain skills, characteristics, and personality traits that make it more likely an entrepreneur will experience sustained success. In particular, you’ll find that most successful entrepreneurs possess strong financial acumen.

 

Why Financial Acumen Matters

“Financial acumen at a basic level is possessing a solid understanding of what drives your company’s profits and expenses and how key financial metrics are used,” Performance Solutions International explains. In other words, you need financial acumen to:

  • Set and understand financial goals for your business
  • Recognize why certain decisions are made and where improvement is needed
  • Determine ways to make your business more money, save money in particular areas, or track key metrics

Without strong financial acumen, you’re forced to rely on the information and opinions of others. This can hold you back and prevent you from being able to make clear, forward-thinking decisions. 

4 Ideas for Improving Your Financial Acumen

You’re either a numbers person, or you aren’t – at least this is what you’ve been led to believe over the years. But is this really true? If you currently possess a shallow understanding of how finance works, are you doomed for permanent ignorance?

Thankfully that’s not really how it works.

Financial acumen is like any other knowledge set. It can be improved over time with a commitment to learning. And if you’re ready to move out of the shadows and into the light, here are some steps you can take:

  1. Take Some Personal Finance Courses

If you desire a greater understanding of business finance, you should start by building up your knowledge of personal finance. Both share very similar principles and ideas, but it’s nearly impossible to have a robust financial acumen in the business world if you don’t first understand how personal finance works.

In addition to getting control of your financial picture and creating a basic household budget, consider taking one of these eight free finance courses that can be completed from anywhere (at home, in the office, or on the go).

  1. Learn the Lingo

Those who don’t possess a very high financial acumen are often intimidated by all of the complicated terms and jargon that exist in this area, but you shouldn’t let these foreign terms and acronyms hold you back. Learning the lingo is half the battle.

Every industry and business is different, but you’ll want to familiarize yourself with concepts/terms like: assets and liabilities, capital, cost of goods sold, EBITDA, operating income, operating expenses, revenue, and profitability.

  1. Focus on the Metrics That Matter

With so many different terms, phrases, and financial concepts, it’s easy to get sidetracked and bogged down. At the end of the day, there are only a few key metrics that truly matter to your business. Identifying and focusing on these will help you block out the noise and hone in on what’s important.

“There are four ratios common in every company: profitability, leverage, liquidity, and operational efficiency,” business consultant Joe Knight says. And within each of these groups, there are usually two or three ratios that indicate how your company is doing.  These are the numbers you have to focus on.

  1. Have Someone Hold Your Hand

Do you have a financial whiz in your company? Is there someone in your professional network that possesses detailed knowledge of how business finance works? If at all possible, find someone to hold your hand and mentor you through the beginning stages of the learning curve.

Financial Illiteracy is a Death Sentence 

You won’t survive very long as an entrepreneur without possessing some financial acumen. It’s impossible for the leader of a business to consistently make smart decisions over time without an understanding of how certain choices impact the bottom line.

If you’re currently struggling with a lack of financial literacy, it’s okay to admit your ignorance. In doing so, you can begin to learn, train, and educate yourself for the future.

Author : Holly Hutton

Born in the Big Easy and raised in the Sunshine State, Holly has spent the last five years brunching in the Big Apple and bantering with Big Ben. As a wandering writer, techy-in-training, and avid alliterator, Holly has written everything from educational policy and political news briefs to web content and travel blogs. She is thrilled to be a part of the KS team and working with a community of smart, savvy, entrepreneurs on all things startup!

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