According to a report from trend trackers Exploding Topics, up to 90 percent of startups fail. The reason? Bankruptcy. A business can run out of money for a variety of reasons, including high startup costs; inability to obtain adequate financing; poor planning or budgeting; and little or no market research or marketing.
“An entrepreneur’s most valuable asset is knowledge. This education is not an expense; it’s an investment. It encompasses understanding financial metrics, analyzing financial statements, and grasping the financial aspect of business decisions,” says Sam Eisenberg, co-founder of Design for Decks, which creates customized presentations (pitch decks) to help businesses and entrepreneurs attract investors
Based on its research, the company cites and explains the following seven important reasons why all business owners, new or old, need to educate themselves about funding.
- Essential for business planning. Decoding the numbers is inevitable in every strategic plan. Data from CashFLowInventory shows that understanding financial statements is vital for tracking business performance. Ths education prepares entrepreneurs to create realistic, effective business plans.
- Anticipating financial challenges. The ability to plan for financial contingencies becomes feasible with funding education. A study by LendingTree found that one out of five U.S. businesses fail in the first year because of bankruptcy. Adverse situations can be better anticipated and navigated with proper knowledge.
- To evaluate funding options. Securing investment is a significant challenge for startups. The small business loan company Lendio reveals that more than 12 percent of small business startups rely on friends and family financing. Funding education enables entrepreneurs to weigh the advantages and drawbacks of various options.
- Enhances credibility with investors. An entrepreneur well versed in financial strategy can communicate business plans effectively, winning investors’ trust. According to a popular post on LinkedIn, clear communication of finances is integral to acquiring funding.
- Keeps company solvent. Understanding budget allocation can prevent unnecessary spending and keep your company solvent. A study from the London School of Business and Finance states that financial management knowledge contributes significantly toward the survival and growth of businesses.
- Determining business worth. Entrepreneurs require funding education to understand the valuation process. A Harvard Business Review research found that misjudging business worth could mean a disadvantage during venture capital negotiations.
- Transitioning from idea to business. A great idea only sometimes translates to a successful business. Data from the SpringerOpen, which publishes articles by researchers from various disciplines, indicates that financial knowledge aids in the transition from an idea to a feasible business.
