Insights On Financial Literacy For Young Entrepreneurs (From Another Young Entrepreneur) Every young entrepreneur should gain the fundamentals of financial literacy by learning how to budget, save and manage cash flow.

Young entrepreneurs need to understand the basics of financial literacy in order to run their businesses successfully. Managing money and cash flow is mandatory to ensure that your business can expand and grow. The following points can guide you to better understand the key concepts of budgeting, saving and cash flow management, and make smart financial decisions for your business.

Budgeting

A budget is just like fuel for your business. It helps you better understand how much money you are spending and earning in order to generate revenue. Creating a budget should involve listing your income (the money you earn from your business) and your expenses (the money you spend on things like raw materials or products, marketing, and shipping).

For example, if you're selling a book, your income would be the total sales you make. Your expenses would include the cost of publishing and making that book a real product, in so many cases if you are reselling a product you should calculate the import fees, and any other business-related costs.

By creating a budget, you'll analyze how much you earn and spend, and that will help you to make better decisions about where to spend and save.

Prepare for the unexpected

It's always better to save a part of your income. It's always life saving when it comes to unexpected issues in business- perhaps we need more raw materials, fix equipment, or cover unexpected low sales.

You can start by putting a small portion of your income, even if it's 5% into a savings account. Over time, these amounts will give you a safety net for any unexpected challenge in the future. When you secure your savings, this allows you to keep running your business smoothly, even when challenges are in your way or when your business doesn't go as planned.

Related: The Road To Financial Security: Why Gen Z Needs A Financial Education

Managing cash flow: Keeping your business running

A lot of young people in business struggle when it comes to their cash flow. It is therefore important to understand what the cash flow cycle is in order to manage the business and understand how much you are investing and how much you are earning.

Cashflow means the amount of money that comes in your business as an income and out as investment or expense. A positive cash flow refers to the amount of money as income more than what you spent as expense or investment. A negative cash flow means that more money has gone out of the business as an expense rather than it coming back as an income. You should keep track of your cash flow in order to make decisions based on how much cash on hand to cover the expenses and keep your business on track and as planned.

Investing in your business

Once you start a solid financial foundation, you should consider investing in your business, which means upgrading your equipment, buying new helpful operational tools, production machines, expanding your product lines, or even investing in marketing your products and brand awareness to reach a wider audience.

Investing is very important in order to upgrade your business or make it grow, but it's important to plan this very well. Make sure that what you invest in is will have a positive return which can lead you to more money, if not now then in the long run.

Understanding profit versus revenue

As you manage your business financially, it's important to know the difference between profit and revenue.

Lots of people calculate the revenue without considering the expense and they keep adding to their capital from their own pocket without knowing.

For example, if you sell books and you generate money after the bookfair ends, that is called revenue. Profit can only be determined after calculating all expenses such as booth rent, freelancers, workers, and transportation.

Let's say you earn AED10,000 in the bookfair sales but spend AED6,000 on expenses- your profit would therefore be AED4,000. Profit is what truly matters because it's the money you get to keep after covering all costs.

Every young entrepreneur should gain the fundamentals of financial literacy by learning how to budget, save and manage cash flow. You will understand the financial terms like profit and revenue helps you to better manage your business and run it successfully. Remember, in business the more you gain knowledge and experience the better you prepare yourself for any obstacles.