Financial literacy is one of the most important skills for any business owner. By understanding your financials, you’ll be able to make smarter decisions that drive growth and ensure the long-term success of your company.
Here are 7 ways to improve your financial literacy in 2025.
1. Read and Understand Your Financial Statements
Your balance sheet, income statement, and cash flow statement tell you everything about your business’s financial health. Take the time to learn how to read these reports and what they mean. Understanding key metrics like net profit, gross margin, and working capital is essential for making informed decisions.
2. Read Thought Leadership Content from Your Trusted Advisors
Do your financial advisors and CPA team produce thought leadership content (like the Tentho newsletter)? Subscribe to blogs from your trusted circle of advisors and actively search for reputable sources. Be cautious of the recent trend of social media financial influencers and personalities who lack credentials as accountants or CPAs.
3. Seek Guidance from a Professional
Sometimes, the best way to improve your financial literacy is by seeking help from a professional. An accountant, CFO, or financial advisor can explain complex concepts in layman's terms and guide you through the financial aspects of your business. This partnership can help you avoid costly mistakes and improve your financial decision-making.
4. Use Technology to Improve Financial Management
Take advantage of technology tools that simplify financial management. Robust accounting software like QuickBooks Online can help you track income and expenses, generate financial reports, and keep your business finances organized. Learning to use these tools effectively will boost your financial confidence and make your processes more efficient.
5. Familiarize Yourself with Key Accounting Terms
Financial literacy isn’t just about reading statements; it’s also about understanding the terminology. Understanding a few key accounting terms can help you make smarter decisions, communicate better with your accountant more effectively, and understand the value they bring to your business. Here are a few key terms to familiarize yourself with:
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Reconciliation: The process of ensuring that your financial records match up with external statements (like bank statements). Regular reconciliation helps identify discrepancies and ensures your financial records are accurate, avoiding potential issues with the IRS and ensuring compliance.
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If there’s a discrepancy, often due to missing or incorrect transactions, bank fees not recorded, or timing differences like outstanding checks or deposits, this can lead to inaccurate financial reporting, which might affect decisions, cash flow, and tax filings. Your accountant will investigate the cause, correct the errors, and ensure both sets of records align to maintain accurate financials. It can also lead trigger IRS penalties or audits since the IRS views inconsistent records as a red flag, especially if it results in underreporting income or missing deductions.
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Balance Sheet:
The balance sheet is a snapshot of your business’s assets, liabilities, and equity at a specific moment in time. It shows what your business owns, owes, and what’s left over for owners or shareholders.
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Income Statement (Profit & Loss Statement):
This document shows your business’s revenues, costs, and expenses over a certain period. It helps you understand your net profit or loss, giving you a clearer picture of financial performance. These are particularly crucial on a monthly basis if you aim to secure financing soon, report to a board, plan to sell, or seek investors.
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Cash Flow Statement:
The cash flow statement tracks the movement of cash in and out of your business. It’s essential for understanding how money flows through your company, which helps in managing liquidity and financial planning.
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Accounts Payable/Receivable:
These terms refer to the money your business owes (payable) and the money owed to your business (receivable). Managing these efficiently ensures your business stays on top of payments and collections.
6. Learn About Taxation and Deductions
Understanding business taxes and what deductions you’re entitled to can save your business a lot of money. Learn about the types of business taxes (income, sales, payroll) and what qualifies as a business expense. This knowledge can help you manage your finances more effectively and avoid tax-related pitfalls.
Maintain regular communication with your CPA throughout the year to ensure you're prepared when tax season arrives.
7. Stay Informed About Financial News
The business landscape is constantly evolving. Staying up-to-date with financial news, trends, and market conditions will help you anticipate changes and adapt your strategy accordingly. Subscribe to business publications, follow industry blogs, and attend financial seminars to keep your knowledge fresh.
Conclusion:
Improving your financial literacy is a powerful way to take control of your business’s future. By understanding key financial concepts, using technology, and seeking professional guidance, you’ll be equipped to make informed decisions that foster growth and ensure stability. This year, invest in your financial education—whether through courses, reading, or hands-on learning—and empower yourself to lead your business toward success. With the right financial knowledge, you’re not just managing your business—you’re steering it in the right direction.