It is said that money is the root of all evil. Over the years it has been observed that the majority of crimes are somewhat due to lack of money and sometimes having a lot of money but not having a clue about what to do with it. Money is a potential loyal entity it can be used to create a fortune for the one who holds it so, it can be said that it is not money but the choices of spender which are the root of all evil.
Financial management is learning dos and donts of the money and how to manage situations where unexpected losses or monetary gains are observed by a person. According to Kiyosaki (2011), this is a crucial part of a persons life which is generally ignored by society and is not taught to children in schools that is why the majority of people end up not knowing about the laws, banking & taxes. These are the lessons which one learns from their family and for a person who is not from an affluent background managing money might become a big problem if not learned.
Lack of financial literacy is the reason why one-hit-wonders and few famous athletes who manage to get rich quickly struggles to keep that money for a long time. Usually, a better earning potential often leads to an increase in wasteful expenditure. Those with good control over finances manage to live above their expenses and those who dont struggle with their debts and bills. In a study conducted in the United States of America, a lot of people end up carrying more debt than their previous generation after retirement (Lusardi, Mitchell, and Oggero, 2018). this depicts what lack of financial education among people will lead to if not checked.
Importance of Financial Management for Entrepreneurs
Entrepreneurs are dynamic agents of change who create economic and social value by providing something novel & useful. Entrepreneurs are the ones who implement their ideas to make them real and by doing so they integrate a large number of people to work and make things happen. Instead of getting a job they create jobs for the community and this comes with a great responsibility of providing them what they work for: Remuneration. This is only possible if a business is managing the money that it makes in a good way.
An entrepreneur who is bad at finances is like a warrior without armor in a battlefield. It is a key skill that will help them to save and create a budget for new projects nevertheless it also enables an entrepreneur to withstand unpredictable losses because in the end entrepreneur has to pay his or her employees regardless of his financial situation. According to Mclntyre, almost 29% of the new businesses fail due to lack of money or it can be said poor financial management. An entrepreneur with good financial wisdom will be much more capable to recognize different types of business costs and will be able to eliminate the wasteful ones. By having good control over finances entrepreneurs are more likely to pay back investors and they will be better at differentiating between a good and a bad investment.
According to an empirical study by Lusardi and Mitchell (2014) people with good financial wisdom have a higher probability of accumulating more wealth. There may be some situations where profits are more than expected. In todays world of technology, information is the new big thing and it moves very fast and that provides a great potential to earn a huge amount of money than before (Kiyosaki, 2011). Usually, investors are ready to invest in new and unique business ideas if they find them profitable. Ideas are usually implemented with those seed investments and the first few years are somewhat sorted. After that Mclntyres (2019) statistics start to become true which is a nightmare for most of the entrepreneurs.
How can an entrepreneur be good at financial management?
According to Sen (2018) following are the key points that a new entrepreneur should learn to be financially successful.
By learning about finances
In this ever-changing world of information knowledge is an essential component of success. An entrepreneur should be responsible for educating himself about the following (Kiyosaki, 2011).
Accounting is an ability to read the numbers, larger the size of transactions more accuracy is required. Good knowledge of accounting will help an entrepreneur to see the weak points of the business in terms of finances.
Investment is a risky subject for the most but for those who educate themselves about investing decrease their chances of getting themselves into a bad investment. Every investment comes with its pros and cons a better knowledge about them will allow an entrepreneur to manipulate them in their favor.
A market is a set of all actual and potential buyers of a product or a service (Armstrong, Kotler, Trifts & Buchwitz, (2016), p. 9). Practicing a good strategy in an unsuitable market or the other way around can be harmful to the financial situation of a business. If entrepreneurs keep their knowledge of market updated they are less likely to make financial mistakes or losses.
4. Law and taxes
Laws work differently for people and organizations, entrepreneurs must learn how he can get most benefits and returns from law and should be updated with the latest version so that they dont get involved in any illegal activity or tax evasion.
By identifying different business costs
The entrepreneurs should learn about where the money is going in any project that involves them. By identifying the different costs, they can be classified and prioritized accordingly and better financial planning can be done.
By creating an organized budget and following it
To make any financial plan successful it should be thoroughly followed and not be improvised unless required. It should be kept in check that financial resources are not overused and budget for other projects is not compromised.
By learning to save
Entrepreneur should have the ability to look for and identify the cheaper alternatives for every investment required in business. For example: not buying what can be rented, hiring interns for work which doesnt require highly specialized staff, Outsourcing, etc.
Saving should not be confused with being a miser; it is more of reducing wasteful expenditure rather than putting a halt on important investments.
Improve credit score
A good credit score is proof that the organization is good at managing their funds and it will ensure investors and banks that their money is in the right hands. This also increases the possibility of getting a loan in times of need when a company is short of working capital.
It can be said that its not about how much one earns its more about how one chose to spend what they have and this wisdom of where and where not to spend is financial intelligence. With higher financial intelligence better management of money can be done. If entrepreneurs are good with the money they will be capable of keeping the money they earn after paying all the costs related to business. Financial management is one of the fundamental skills which entrepreneurs must have if they are planning to stay in business for a long time and keep their hard-earned money for their children & family.
Armstrong, G., Kotler, P., Trifts, V., & Buchwitz, L.N., (2016), Marketing an introduction (Canadian 6th edition). Toronto, ON: Pearson Canada Inc.
Kiyosaki, R.T. (2011). Rich dad poor dad. Scotsdale, AZ: Plata Publishing.
Lusardi, A., Mitchell, O. S., & Oggero, N. (2018). The changing face of debt and financial fragility at older ages. American Economic Association Papers and Proceedings, 108, 407411.
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: theory and evidence. Journal of Economic Literature, 52(1), 544
Mclntyre, G. (2019, September 10). What percentage of small business fail? (And other need-to-know stats). Retrieved from
Sen, A. (2018, May 17). 6 Key Finance Management Tips for New Entrepreneurs. Retrieved from