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| warm and brighter sitting place |
Eventhough I have no worth, it is
crusial to understand financial literacy as i do not want to fall prey to having too much
debt and overspending. I will help myself to take care the hard earned money and to improve my financial well-being due to
no one else will do this for me. I heard my boss said “nothing free in this
world, so for the gifts we recieved, there might be something happen and do not
forget to send the thank you note”. I heard from the banker that they can not
do anything regarding “the interest rate” everything already there in the
system and each month automaticaly debet your money for your loan and interest,
all the customer can do is just pay and
the system already records everything even for some missing months you did not
pay, you will pay it again in the future”. Another reason of family’s finance as we are the parents and
we ourselves know the details, being financialy literate is important. And for
the small retail store, the financial challenges always there, including the
debt levels in the bank that could not be negotiated due to the charging of the
interest.
The definition of financial
literacy I found, Financial literacy defined as the ability to understand finance
(Mahadzir Ahmad, 2010) . Another definition of financial literacy as the
ability to make effective decisions regarding the use of management of money
and other assets (Mohammad Azmi Abdullah and Rosita Chong). Financial literacy
is also the combination of consumers or investors understanding of financial
products and concepts and their ability and confidence to appreciate financial
risks and opportunities, to make informed choices, to know where to go for help
and to take other effective actions to improve their financial well – being (Miller
et al., 2009). Huston (2010) consider financial literacy including awareness
and knowledge and financial instruments and their application in business and
personal life. For this definiton, financial literacy includes the ability to
balance bank account, budget preparation, save for the future and learn
strategies to manage debt.
Remund pointed definitions of
financial literacy into five categories:
- Knowledge of financial concepts
- Ability to communicate about financial concepts
- Aptitute in managing personal finances
- Skill in making appropriate financial decisions
- Confidence in planning effectively for future needs.
Worthington (2006) found that
financial literacy was at the highest for persons aged 50 and 60 years,
professionals, business and farm owners and university / college graduates. And He found that
literacy was at the lowest for the unemployed, females and those from non –
english speaking background with low level of education.
Financial literacy also means the
ability to understand and analyze financial options, planning for the future
and responding appropriately. People’s individual lives threatened by the complexity of financial decisions and
economic recession. Increased financial literacy has a positive impact on
people’s personal and business life. The financial knowledge helps reducing
social and psychological pressures and increasing the welfare of the family in
the personal life. Financial knowledge reduces stress, illness, financial
disputes, abuse of children and conflict among the families. People grown up in
families with the higher financial knowledge and well-being are less depressed,
show less aggressive and anti-social behavior and have more self-confidence
(Fox et al., 2005). Financial literacy is one of issues that can help in term
of complexity and recession and could have a postive effect on economic
capability.
Financial education rest upon the
shoulders of the consumers themselves, some of the reasons are:
- Consumers must take care of their own money themselves, because no one else will do it for them.
- Consumers must seek financial knowledge because they know best details of their financial affairs. Sometimes it is simply impossible for someone else, even a professional adviser, to understand personal preference or sentimental value.
- Consumers nowadays are bombarded with varieties of financial products. You must sort out what you want in life first.
- Muslim must seek to understand Islamic Finance because it is a religious duty.
The survey on the basic
undertanding of financial term like “loan”, “interest rate” and “budget” make
shocking reading. The money advise service surveyed 3000 adults and found that
32% did not understand the meaning of interest and further 32% did not
understand the meaning of budget. This raises a number of questions for the
teaching of finance in universities, for example bank, are they using complex
mechanisms to disquise the truth about finance and make it appear scholarly and
objective? Is modern finance teaching and research a party to the exploitation
of financial illiteracy and unconcerned about its own ethics and social
responsibility? Does the finance academy operate in its own bubble?
Retailing
One of the most important aspects
of retailing is cash and cash handling.
It is essential for the retailer
to track the daily cash flow to calculate the profit and loss of the store
Cash register, electronic cash
management system or eloborate computerized point of sale (POS) system help the
retailer to manage the daily sales and the revenue generated.
Cash pays the bills and allows
trading to continue. If you don’t have enough cash to pay your suppliers, pay
rent, make loan repayments to the bank then your business will be in
difficulties. Reasons for this might be:
- A large outlay for stock or raw materials
- A repair bill
- A seasonal low in income
- You are a start up business
- You have to much unsold stock
- You are selling your products on credit
- Customers not paying on time
- Your business is growing and extending credit to more customers.
Poor cash flow management is one
of the most common reasons for business failure. If you run out of cash, then
you may find yourself unable to carry on trading, you won’t be able to pay
yourselves and your creditors. Good cash flow management lets you plan for
times when you may need extra cash and avoid slipping into insolvency.
The five fundamental types of
accounts in bookeeping: Asset, Liabilities, Equity, Income, Expense
Negative equity is when your
liabilities are greater than your assets. This means if you sold everything and
got all the money owed to you, you still couldn’t pay back everyone you owe
money to. It means you are technically insolvent.
“Equity = Assets –
Liabilities”
If you have a negative equity you
are legally obliged to have plan for getting out of it. It is illegal to trade
otherwise. If your business is registered with limited liability (which means
that directors are only responsible for the debts of the business up to the
amount of money they personally put it, either as quarantees or shares), then
your personal liability becomes unlimited unless you are acting to get the
business solvent again.
Part of this is to consider at
every meeting of your business whether it is in the best interest of your
creditors to keep trading. Specifically you must consider whether your
creditors are more likely to get their money back if you keep trading than if
you declare your business insolvent.
A Small business owner need to
upgrade their skill in finance and the owner who’s knowledgeable about finance
will be prepared to take on challenges that come their way. They’re able to
manage their cash efficiently , prepare for taxes and posssible audits, balance
their books, predict profits and plan their future accordingly. It is no
surprise that financial literacy and positive business performance are
associated with each other. And the business owners know that starting and growing a business is about more than just making money. They are trying to impact their community and their employees quality of life, and helping them understand their finances will do just that. As a small business owner, the understanding about your business’s financial situation improves your chance of long – term success. In terms of your financials, you need to know where you stand.
The business also need to engage
employees with spheres of financial literacy. Employee who understand the
detailed aspect of business finance know the reality of profit and costs, and
that net profit is not always as high as it seems. They’re more likely to see
your business, their workload and their salary in a favourable light.
To promote a positive workplace
that will engage your employees, create spheres of financial literacy. Mandate
training and education on the principles of finance for all your employees.
These seminars and workshop will improve their performance at work.
Karen Bermann and Joe Knight
investigated some managers form C level executives to supervisors and the news is not good. A majority were unable to distinguish profit
from cash. Many didn’t know the difference between an income statement and a
balance sheet. About 70% couldn’t pick the correct definition of “free cash
flow”. According to Karen Bermann and Joe Knight, from the individual manager’s
point of view, the lack of financial literacy matter. Those who can’t speak the
languange of business can’t contribute much to a discussion of performance and
are unlikely to advance in the hierarchy. Another tested by Karen Bermann dan
Joe Knight to a health care service company which seeking to improve its gross
margin, unfortunately nearly two third of the test takers though that discounts
offered by sale reps had no effect on gross margin. Bermann dan Knight stated
that if you don’t understand what goes into a number, you can hardly know how
to improve it.
Financial challenges for the retail
The common challenge is limited
or no access to finance. This is the biggest issues facing retail SMEs and SMEs
in general. It limit their ability to invest and improve or grow their store
and effectively compete with international chains.
There are number of complexities
beyond the sole issue of access to finance. These include accessing adequate levels
of finance, ability to negotiate with financial institutions, unsustainable
debt levels and debt restructuring. Regarding debt restructuring, a further
isssue of concern which requires
attention is the number of retail SMEs which have unsustainable debt levels
requiring restructuring. This is a common situation in certain countries. Moreover,
in certain jurisdictions, there has been a lot of debate about the prevalence
of non – performing loans in the SME sector. There has been a notable lack of
enthusiasm by the banks to adequately address the situation. This is not helped
by the results of the recent crisis where economies are reliant on their
established bank for financing, yet there is reduced banking competition due to
consolidation. In addition, some of the debt of now merged bank is being sold
to unregulated funds, which creates uncertainty for retailers who are heavyly
indebted regarding the status of their loans and potential changes in the
conditions.
Tips for controlling of your business finances and improving
financial literacy:
1. Do the math
You have to know how much money
it takes to run your business. Determining the true costs of your products and
services, such as labour, transportation, rent, marketing, insurance, phone,
internet, utilities, taxes and whatever else you require to function (example
for our business is cleaning service for
gardening).
2. Uncover your hidden costs
Cost of legal services, your own
salary, return on investor capital and capital for future expansion. And not to
forget the cost of borrowing money and interest and debt you may already
accrued. Once you can put numbers to everything that takes money out of your
business, you can plan how much you will need to grow going forward.
3. Bone up on the basics
Know how to read and make use of
income statements and balance sheets, understand your inventories, and learn
how to manage your cash flow and supply chain.
4. Know where you stand
Analyze your competitors and
ascertain how your company stacks up against them in terms of goods, services and
pricing. Determine the competitor’s strenght and weaknesses and identify
opportunities there in. Work on deeping your understanding of your customers
and figure out if they could and would spend more for what you provide.
5.Establish priorities
Making a profit is an obvious
goal, or another things to accomplish. Do you want to see your product on every
shelf or only in select boutique store? Do you want to expand or franchise your
services or keep you company small in order to provide customized experiences
to those willing to pay for them? Identifying your priorities will help
determine the future course of your business, and correct costs for your
products or services.
6. Embrace technology
By using the mobile devices and
tools like financial management software, online banking, and secure cloud –
based document storage, entreprenuers can work effectively from anywhere,
making life as business owner easier, faster and enjoyable.
7. Find a professional you trust
Accountants and bookeepers are
invaluable partners who can help you understand where your business is and
where it is headed. They will use data from you financial management tools,
analyze it and work with you to provide an overview of your needs.
8. Learn how to use financial management software
Whether you have a good
understanding of finance or are just starting to learn, there are software
options that can help you accurately track your finances, invoice customers,
file taxes, manage your budget and build your financial lliteracy at the same
time. Cloud based financial management toold can give you an immediate picture
of your financial situation, saving you time and allowing you to get back to
growing your business.
9. Seek guidance from credible organizations
Seek the guidance from credible
organization will help you make smart decisions, get you on the right track.
10. Determine your worth
How you price your products or
services and how much does an hour of your time cost? Unfortunately, many
business owners guess iincorrectly and assign arbitrary numbers. Infact, one in
four small business owner (27%) believe they may be undercharging based on the
high level of value they provide and are therefore impacting overall
profitability and chances for long term success.
Read More:
Mahadzir Ahmad (2010). Why
Financial Literacy is Important. Islamic
financial planning. Retrieved from http://www.kantakji.com/media/7314/b112.pdf
Rob king (2014). Ten ways small
business owners can improve their financial literacy. Retrieved from http://www.theglobeandmail.com/report-on-business/small-business/sb-tools/top-tens/ten-ways-small-businesses-can-improve-their-financial-skills/article21426293/
Nathan Waters (2015). What
Financial Literacy Can Do for Your Business. Retrieved from http://smallbusinessbc.ca/article/what-financial-literacy-can-do-for-your-business/
Karen Berman dan Joe Knight
(2009). Are Your People Financially Literate. Retrieved from https://hbr.org/2009/10/are-your-people-financially-literate
Marzieh Kalantarie Taft, Zare Zardeini
Hosein, Seyyed Mohammad Tabatabaei Mehrizi (2013).The Relation between Financial Literacy, Financial Wellbeing and
Financial Concern. International Journal
of Business and Management. 11 (8), 63 – 65. www.ccsenet.org/journal/index.php/ijbm/.../16664
Atul Shah (2014). Financial Literacy is Schockingly
Low and the Academy must Do More. The conversation. retrieved from http://theconversation.com/financial-literacy-is-shockingly-low-and-the-academy-must-do-more-31321
Mohamad Azmi Abdullah and Rosita Chong (2014).
Financial Literacy: An Exploratory Review of the Literature and Future
Research. Journal of Emerging Economies and Islamic Research. 3 (2), retrieved
from http://www.jeeir.com/index.php/jeeir/article/view/129
European Commision (2015). High Level Group on
Retail Competitiveness. Report of the Preparatory Working Group on SMEs.
Retrieved from http://ec.europa.eu/growth/single-market/services/retail/index_en.htm
