New Articles

The Importance of Being Financially Literate in Business


The Importance of Being Financially Literate in Business

Running a business, regardless of its size, is not an easy thing to do. You must understand how the cash flow works and all other money-related stuff in the industry.

Naturally, you want to earn revenue from your organization; profit is not the only thing about finance.

Financial literacy is vital in building your business, including personal finances. If you understand how finance works, you will know how to consolidate high-interest debts, keep books efficiently, make a financial plan for the business and yourself, and create effective financial decisions.

This article will cover what financial literacy is and why it is vital in business.

What Financial Literacy Is

Financial literacy is understanding your business’ finances, including all money-related activities, such as debts and account receivables. It gives you the knowledge of financial terms, theories, ideas, statements, and common practices. All these things can help you see the company’s clearer picture of its financial situation as it affects the scalability of the business — the capacity to grow to meet the demands.

You don’t need to be a graduate of a university or any specific course to become literate financially. Even if you don’t have any idea how accounting works, you can learn the basics that will help you improve in making financial decisions.

The Importance Of Financial Literacy In Businesses

Being financially literate is a must if you don’t want to fail your business journey. That will help you be more accurate in your financial calculations and endeavors. Overall financial literacy gives the advantage to dealing with many challenges related to your business finances.

Managing Cash Flows

One of the most obvious importance of financial literacy in business is the ability to manage cash flows better. The company’s cash flow doesn’t only focus on the actual money you receive when making sales. It also includes the purchase of resources to make and sell the products you have.

When your client or customers want to buy bulk orders from you and set a payment term, such as bi-weekly or weekly, it is also included in the cash flow even though you haven’t collected the money. This is usually called account receivables.

Even if you haven’t gotten the full payment yet, you still need to manage and allocate where the funds go.

Aside from the receivables, debts are also part of the cash flows. Make sure that you pay everything on time to avoid paying for high-interest rates. These interests affect the company’s profitability and finances when left unpaid.

Handling Your Taxes

As a business owner, handling your taxes is a part of your duties. You have to pay your income tax, self-employment tax, and other obligations to avoid any financial issues in the future.

It’s best to understand what your tax situation is. You’ll be able to calculate the total amount and avoid paying less or more. If you pay lower than you’re supposed to, it could affect your business financial situation as you need to get additional funds to pay for your taxes.

On the other hand, paying more than you need also disrupts the company’s cash flow.

If calculating your overall tax is complex for you, it’s best to hire a tax professional or an accountant to handle the taxes. However, if you study how to compute it over time, you won’t need to hire professionals to do the computation.

Negotiating Skills

Financial literacy can help you improve your negotiating skills. Understanding how finance works allows you to see the bigger picture, whether you are negotiating for materials, stocks, or your employee’s salary.

You’ll understand how certain adjustments can impact your business. For instance, if you give more benefits to your employees, it could positively and negatively affect the financial flow. You’ll be paying for more, but they can become more productive.

When negotiating about finances, you’ll be able to see how it affects the business’ financial situation. This means you can sway the conversation in your favor and turn it into a win for your organization.

Advocating The Team’s Budget

When you need a budget for a certain project or product, understanding finances helps build a strong case. You’ll be able to allocate the funds efficiently and identify which areas can be adjusted to get the funds you need.

For instance, your company needs funds for a new marketing strategy, and you don’t have enough funds for it. You might consider adjusting the program to meet the budget or go for a loan. Computing everything is the key to avoiding any financial setbacks.

You’ll also be able to calculate the expected return on investment when allocating the budget, helping you prevent any loss from your company. It’ll also give you an insight into whether the amount is a good investment, especially when buying new items to run the business.

Analyzing Your Financial Statements

Financial statements represent the financial status and performance of the company. The data is usually gathered annually, but some companies do it biannually. If you’re financial literate, you’d be able to analyze them independently.

When looking at financial statements, you’ll find the factors that affect profitability and whether a marketing campaign is successful or not. This will also show any loss and if the company is making a profit.

By analyzing the data, you’ll be able to understand the financial health of your organization. This is a critical element in any business as it could identify any financial problems the company is experiencing, allowing you to make business-oriented decisions.

Become Financially Literate

In any business, understanding finance is essential. You can hire professionals to work it for you, but as a business owner, it is best to know how it works; besides, it’s your company.

When you become financial literate, you’d be able to calculate your company’s expenses, expected profit and loss, and budget accurately. You will also manage the cash flow, pay taxes, allocate funds for specific projects, negotiate, and analyze the company’s financial situation.

This will allow you more control over finances, helping you decide for the betterment of the organization regarding its financial structure. So, become financially literate to run the business better, and manage its finances more efficiently as you make decisions to help the company.



Getting Caught on the Backswing – Will US Sanctions Undermine the Dollar?

Since the Bretton Woods Agreement in 1944 there has been one currency that eclipses all others for international trade: the U.S. dollar. The dollar dominates when it comes to reserves and the settlement of trades, a hegemony that affords U.S. foreign policy incredible strength on the world stage. However, the U.S. reliance on the strength of the dollar to pursue far-reaching sanctions is also beginning to cut at the roots of that strength, as allies and global trading partners simultaneously pursue their own economic agenda and react to perceived over-reach by U.S. policymaker. 

A View from the Top

In 2019, the dollar comprised over 60% of global debt, more than 60% of global reserves for foreign exchange, and was the medium used in 40% of international payments, according to the European Central Bank (ECB). Despite the economic output of the Eurozone roughly matching that of the U.S., the euro accounted for only 20% of foreign exchange reserves and just over 20% of international debt (1).

This allows U.S. foreign policy a potency lacking in other international currencies. The Trump administration has relied heavily on this dynamic, imposing coercive economic measures on a wide spectrum of targets from Venezuela to North Korea and exponentially increasing the number of sanctioned entities. In fact, the U.S. sanctioned around 1,500 Specially Designated Nationals and Blocked Persons (SDNs) in 2018 alone, almost 50 % greater than in any other single year. 

Growing trends have become noticeable in the financial streams flowing between borders; a rise in the use of the euro, RMB and ruble as forex currencies, development of routes around the conventional financial sector, and flurry of interest surrounding the nascent potential of cryptocurrencies. The major drivers of these changes are unrelated to sanction policy and are more tied to the politicization of U.S. monetary policy or the inherent economic interests of other nations and trading blocs, including turning their own currencies into global standards. Regardless of the drivers, these developments suggest an international system ill-at-ease with the power of the dollar.

Secondary Nature, Primary Threat

The unrivaled strength of the U.S. dollar affords U.S. policymakers a weapon unavailable to any other nation. This is built on by the ‘secondary’ nature of U.S. sanctions – extending the impact of sanctions to non-U.S. entities who do business with sanctioned entities or individuals – that leaves few avenues to evade the regime. 

As virtually all dollar-denominated transactions pass through the U.S. financial system, even if just momentarily when they are “cleared,” very few businesses are able to trade with the targets of primary sanctions without themselves falling under the secondary regime. Violators are potentially liable for sizeable fines or other punishments, including being locked out of the U.S. financial system themselves. 

While this is a useful tool for closing down avenues of terrorism, crime or other illicit activity, it also means countries that disagree with the targets of U.S. sanctions must either comply or place their own industry at risk. The EU-U.S. divergence on the Iranian Nuclear deal, or on U.S. sanctions towards Cuba, are good example of this. 

This increasing sanctions activity provides the seedlings that may undermine the dollar’s strength, as it prompts allies that disagree with sanctions regimes to develop alternatives to the dollar – such as the Euro, Chinese RMB or Russian ruble. Special Purpose Vehicles, such as the EU-Russian INSTEX, are created – albeit with difficulty – to provide routes around the conventional financial system. 


Against this politicization of the dollar, various countries are developing alternatives. The euro is staking its claim with the development of the INSTEX vehicle and a declaration by Jean Claude Juncker, then-president of the European Commission, “to do more to allow our single currency to play its full role on the international sector” (2).

Similar gauntlets are being thrown by the ruble – Russia has been developing its own payments system since the Crimean sanctions in 2014 – and the RMB, with the Chinese Cross-Border Interbank Payment System (CIPS) launched in 2015. Given the size of the Chinese market and its growing world position, the RMB could theoretically pose a challenge to the dollar. However, the politicization of the RMB’s value – witnessed most recently in its rapid devaluation targeted at injuring the U.S. as part of the trade war – undermines its use as a global currency in the near to medium term. 

Another potential pitfall for the dollar is the development of new financial technologies, including the much-discussed Blockchain and cryptocurrencies. Such systems allow for the circumvention of the U.S. financial system and enable payments in relation to sanctioned activities, and have already have been used to facilitate illicit payments in North Korea and Iran. 

Mobile payments are also on the rise, further reducing global exposure to the dollar. However, as with other examples above, the use of some of these alternatives are being driven in significant part by illicit activity, which may lay the seeds of its own demise or limited adoption. 

The dollar’s strength on the international stage is undeniable, affording U.S. foreign policy unparalleled reach and potency. However, increasing international attention is being given to the Trump Administration’s fondness for relying on coercive economic measures in foreign policy, including the imposition of sanctions, tariffs, export controls, and investment restrictions. 

Each time a trading partner or ally objects to the U.S. policy goals but is forced to accept a new sanctions regime because of the dollar’s dominance, that dominance is eroded. While the dollar remains by far the best safe-haven for investments, backed as it is by a resilient economy and a history of stability, the potential corrosive effect of sanctions cannot be ignored. The future use of sanctions should factor in this unintended consequence and overall sanctions policy designed to ensure the long-term dominance of the U.S. dollar. 


Matthew Oresman leads Pillsbury Winthrop Shaw Pittman’s International Public Policy practice, carrying out high-profile activities in many of the world’s capital cities. He principally advises governments, political leaders, businesses and NGOs on achieving their most important objectives. He regularly designs and implements legal and policy solutions, including managing integrated U.S. and Europe-based initiatives. He advises global businesses on entry into emerging markets and compliance with U.S. and international regulations.



(2) See Juncker, J.C. (2018), “The Hour of European Sovereignty”, State of the Union Address 2018 –