Financial education for entrepreneurs

Financial education is a topic that concerns us all: individuals and professionals, entrepreneurs and employees. As a new entrepreneur, you often learn on the job, and frequently from your mistakes. A good financial education can mitigate these errors and enable you to aim for success and sustainability for your business. Our experts at Spuerkeess are regularly called upon (by the University, the Chamber of Trades, Jonk Entrepreneuren, Paperjam, etc.) to host conferences on financial awareness for entrepreneurs, particularly on topics such as establishing a business plan. In this article, we will define financial education and provide you with the keys and sources to develop your skills and knowledge in this area.

What is Financial Education?

According to the OECD definition, financial education involves:

• Understanding financial concepts and risks,
• Being aware of financial risks and opportunities,
• Making informed financial decisions,
• Improving financial well-being.

Quite a program, isn't it? In Luxembourg, according to a recently published international study by the OECD on the financial literacy of adults, only 53% of residents have reached the minimum required score to be considered financially competent. And 65% have correctly answered questions assessing basic knowledge.

Financial education for entrepreneurs

For an entrepreneur, the financial aspect is essential to their project. In business, financial education goes far beyond budget management: it extends to a comprehensive understanding of financial statements, concepts of savings, debit and credit, investment strategies, and risk management (financial, social, environmental). Financial skills enable informed decision-making, risk management, and seizing opportunities that contribute to personal and business growth. It's not just about manipulating numbers, but also understanding the language of finance and how to use it.

By creating your business, you become your own boss and organize your work as you see fit. However, you will always be accountable: you must satisfy your partners (customers, suppliers, employees). As a business owner, you reap the rewards of your work and the profitability of your project belongs to you. You create capital, value, and you want to live off it. The following financial pillars are essential for the successful growth of your business.

Financial plan

To create your business, you need a clear financial plan, which will determine what funds you will need to start and manage your business and how you aim for profitability. To establish your plan, you need to know your startup costs (renting or buying space, equipment, personnel, etc.), your operating costs (equipment, inventory, marketing, etc.), and have a vision for the income (sales projections, pricing of services offered, etc.) to expect. Our advisors regularly find that it's a challenge to find the right balance between starting a business and creating reserves for yourself. It's not prudent to invest all your capital in your new business because you never know what might happen in life; you need to find a good balance when creating. If you cannot bear the initial financial investment alone, look for people who can support you. Having the support of your circle (family, partners) is absolutely essential.

Budget management

The art of managing your budget is one of the key skills of financial education. As an entrepreneur, it is especially important to create, manage, and adhere to budgets to ensure effective allocation of the financial resources at your disposal. Adequate budget management includes not only tracking income and expenses but also financial forecasts for the future. A precise and well-established budget serves as a roadmap. It guides you towards financial stability and helps you overcome the inevitable ups and downs of your business's cash flow.

Why is it necessary to plan a budget? It will help you:

La création d’un budget vous aidera à :

• Set and achieve financial goals
• Control your expenses
• Avoid debt
• Plan for the future and contribute to the sustainability of your business
• Reduce financial stress

How to create a budget?

Follow these few simple steps:

• First, list all your income and expenses:
  • Income: personal contribution, share capital, sales income for the business, etc.
  • Expenses: acquisition of equipment and furniture, office rental, mobility, insurance, contributions, VAT to be paid, social charges, employee salaries, product purchases, etc. Gather all your important documents to take into account current or future contracts (subscriptions, insurance, etc.)
• Seriously and carefully track incoming and outgoing invoices.
• Don't forget a "contingencies" item in your budget management!

Review at the end of each month to keep good track.

Managing financial statements

As an entrepreneur, it is essential to know and be able to use financial documents such as balance sheets, income statements, and cash flow statements. Properly interpreting and monitoring financial statements monthly allows you to assess the financial health of your business, identify areas for improvement, allocate your resources strategically, and demonstrate your responsibility to potential investors or creditors. Regular monitoring of your financial statements allows you to stay on track and make necessary adjustments if needed. Profits are essential in business. Without a healthy net result, its sustainability is not assured. That's why as a business owner, you must understand how financial flows work.

Being up to par, investment-wise

The priority of a new business is to generate initial profits. But keep in mind that it's impossible to spend every earned euro: you must start creating reserves from the beginning. In the early stages, consider building up savings that will serve as your cash flow. Have your "rainy day fund" from the start! And set yourself a rule for your investments: only invest money you don't need; the rest should be placed in traditional deposits (savings, term deposits). Acquiring in-depth knowledge of various investment options (such as stocks, bonds, investment funds) is also an important pillar of your financial management. Knowing how to assess risks and returns, diversify your portfolios, and align your investments with your business goals allows you to make the right investment decisions to optimize your business's resources and achieve sustainable growth.

In summary, mastering the essential elements of financial education will establish a solid foundation and contribute not only to the success of your business but also to your personal well-being. Sound finances are the foundation of any functioning business, and it is your responsibility as an entrepreneur to familiarize yourself with this subject.

Need to know more?

If you have further questions about financial education, don't hesitate to contact your banker, seek information on websites such as spuerkeess.lu/blog or letzfin.lu, or enroll in courses to deepen your financial skills.