Why Financial Literacy Matters for Small Business Owners

Key takeaways

• Build core money skills like cash flow, recordkeeping, budgeting, credit, and taxes to run your business with confidence.
• Adopt free financial tools and platforms to save time and keep your payments on schedule.
• Use free resources like Money Smart, SBDCs, and SCORE mentors to grow your financial literacy over time.
• Recognize that stronger financial literacy helps you plan ahead, access funding, and build a business that lasts.

What is financial literacy for small business owners?

Financial literacy for small business owners is the ability to read, understand, and act on your business’s finances. That covers everything from cash flow to credit and taxes. It means you can make sense of the numbers behind your decisions.

When you understand your finances, you can spend with confidence, spot problems early, and plan for growth. It’s one of the most powerful skills an owner can build.

A strong vision isn’t always enough for a business to thrive

Like many small business owners, I didn’t have a business school education or other training when I started Happy Cork in 2019. Before creating my business, I studied fashion design and then went into real estate with my husband.

When we couldn’t find a new tenant for one of our buildings in Bedford-Stuyvesant, Brooklyn, we saw an opportunity. We created a much-needed space to celebrate Black-owned, minority-owned, and female-owned brands of wine and spirits.

As I started my business, I realized just how many challenges small business owners face every day. Managing a business’s finances is just the tip of the iceberg.

Courses are offered in a patchwork across the nation’s school systems. Few business owners are fortunate enough to learn personal finance skills in the classroom, let alone tips for managing their business. It’s time we discuss how a lack of financial literacy impacts small business owners.

I know all too well that there’s no playbook for how to run a business, and too many owners struggle to get through those early years. Better educating owners on how to manage their finances can improve their odds of lasting success.

We had a strong vision for our business, but there were many unexpected financial hurdles along the way. Because we sell unique, minority-owned brands, we can’t buy wines from the same distributors as other Brooklyn liquor stores. Instead, we rely on roughly 30 different distributors. They stock our store with the largest collection of Black and minority-owned wines and spirits.

Core financial literacy skills every small business owner needs

You don’t need an accounting degree to run your finances well. A handful of core skills cover most of what you’ll use day to day.

• Cash flow management: knowing what comes in and what goes out, and when.
• Recordkeeping: tracking income and expenses so your numbers stay accurate.
• Budgeting and forecasting: planning ahead so you’re ready for slow months.
• Credit and financing: building credit and knowing your funding options.
• Taxes and compliance: meeting your obligations on time to avoid penalties.
• Risk management: protecting your business from the unexpected.

Technology came to our rescue

In the beginning, managing payments and invoices from dozens of distributors was immensely challenging. If we were just one day late, a distributor could refuse to sell us the wines our customers expect and demand.

Luckily, we found the free payments platform Melio, which streamlined our payments and invoicing processes. It gave us confidence that payments to distributors would be made on time. That let us focus more energy on growing the business.

My business isn’t alone. Thousands of small businesses across the country are turning to financial technology to help with back-office responsibilities. In fact, 57% of small businesses introduced new or improved technologies in the last two years.

Small business owners are often wary of adopting new technologies, especially if they’ve operated the same way for decades. But investing a small amount of time researching free financial tools can have a big payoff. In my case, I wish I’d embraced financial technology sooner.

Money is tight for many owners, and the typical small business holds only about two weeks of cash to cover expenses. Amidst inflation and supply chain bottlenecks, I urge owners to explore the online tools available and embrace the digitization of payments. Running a business has a steep learning curve, but free resources can keep your finances on the right track.

How to improve your financial literacy

Building financial literacy is easier than it sounds, and much of the help is free. Start small and add skills as you go.

1. Take a free course built for owners, like Money Smart for Small Business.
2. Meet with a local advisor or a volunteer business mentor for personal guidance.
3. Use free tools to track your bills, expenses, and cash flow in one place.

Leveling the playing field for small business owners

Financial literacy and financial technology literacy can help level the playing field for small businesses. They help owners compete in the global marketplace. I encourage owners to take advantage of the resources available, such as online courses and free financial technology services. Most importantly, don’t be afraid to ask for help.

With your finances under control, you can focus on what really matters: growing your business. Ready to spend less time on payments? Sign up for Melio and keep your bills on track.

Sunshine Foss is a Melio customer and the owner of Happy Cork, a wine and spirits store in Brooklyn.

This article originally appeared in AMNY.

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