When entrepreneurs set up business ventures, one of their primary objectives is to make them profitable. To achieve this objective, they have to keep striving to generate wealth. So, business enterprises are conduits of value and growth, which find expression in cash, capital, and assets and get reflected in the books of accounts and financial statements as earnings, profits, credits, debits, expenses, etc. To run a business venture profitably and successfully, an entrepreneur needs solid financial understanding and sound judgment to connect the diverse accounting and financial concepts mentioned above with practical business management principles and processes, referred to as financial acumen.
Thus, financial acumen is a combination of knowledge, skills, and experience that bestows a business owner with the much-needed aptitude and ability to understand, use and leverage money, assets, and other resources effectively and efficiently and to ensure that the business unit keeps running successfully and achieves its goals. An entrepreneur who lacks financial acumen will have to depend on others who may not have the same stake in the business. As a business owner, it is not necessary for you to be an accountant or a finance manager, but you need to understand what they are doing and conveying. As you have the highest stake in your business, not acquiring the required skill and knowledge to manage your finances is gross negligence.
If an entrepreneur lacks financial acumen, it can also close the doors to many opportunities, including those that could have attracted funds and investments. Potential stakeholders, from angel investors to banks, to business partners to intermediaries, who can make your business grow or thrive, will want to interact with you and understand your level of financial acumen before they commit their support. If they find you lacking, they will not feel confident to support or assist your business, even though it may have the best business model and tremendous future potential. Then, your firm may find it challenging to scale up, diversify, expand or foray into new markets without external funding or capital inflows.
Financial acumen and understanding of the financial tools that make a business successful help entrepreneurs create realistic goals and strategies for their business enterprises. They can balance their business ventures’ long-term and short-term goals and stay on top of financial statements, performance measures, and their impact on the business. Financial acumen is not simply about numbers because it also helps you evaluate risks to your company and recognize opportunities. It goes beyond budgeting and reporting to making realistic market predictions and capitalizing on them to guide your business towards growth and success.