A colleague of mine recently told me about one of her clients, a restaurant owner who’s been in business for eight months. Sadly, her restaurant may be out of business soon because she has poor financial awareness.
For the first six months, this owner did exactly what many new business owners do. She ignored her numbers. She was busy. She was serving customers, managing staff, and putting out fires. She believed the financial side of things could wait.
But finances caught up to her quickly. She’s been borrowing money to keep the restaurant afloat. And because she was ignoring her numbers, she was unaware of whether or not her business could actually sustain itself.
One of the first things my colleague asked her was about her financial picture. When this business owner finally got her numbers together (kinda), she was in a pretty deep hole. If she’d understood what to look for from the beginning, she might not be wondering if her restaurant will be around for another month.
For a business owner, poor financial awareness is expensive. Obviously, it costs money, but it can also severely limit your options.
How Common Is Poor Financial Awareness Among Business Owners?
Very. According to the Intuit QuickBooks 2025 Financial Literacy report, 42% of small business owners admitted they had limited or no financial literacy before starting their businesses. Only 16% had a business degree or similar qualification. And then there’s the rest who were just winging it and learning as they went.
And me? When I started out as an entrepreneur 20 years ago, I was definitely in the 42%. I was making it up as I went. Thank goodness a CPA asked me to be a case study for a course she was teaching, and she taught me the basics of what I needed. And I graduated to being part of the rest of the crowd – winging it, and learning as I went. Yes, sometimes my learning was painful and expensive.
Starting a business doesn’t typically come with a business owner’s manual. Most of us start businesses because we know or do something others find valuable, and we enjoy what we do. The financial side of things gets pushed to the back burner because it feels intimidating, boring, or something your accountant or bookkeeper handles.
That same QuickBooks report found that 45% of small business owners say they’ve lost at least $10,000 in profits because of low financial literacy. And one in eight (13%) believe they’ve missed out on $500,000 or more!
Breathe…
We’re talking PROFIT, not revenue. This money should have been in the business owner’s pocket.
What Does Financial Awareness Mean for a Business Owner?
Most people think of personal finance when they hear “financial awareness.” They immediately think about things like credit scores, budgeting, and retirement savings.
However, for a business owner, financial awareness means that they understand a handful of numbers. These numbers can tell you if your business is financially healthy, sick, or bleeding out. They help you to quickly know the answers to questions like:
- How much does it cost to deliver your product or service?
- What’s your profit margin on the revenue you bring in?
- Are you leaking money somewhere?
- Can you afford to hire someone to help?
- Are your prices based on real costs?
As a business owner, when you understand your numbers, you know enough to make informed decisions about money matters. And it means the difference between you running your business and your business running you.
Why You Can’t Run Your Business on Revenue Alone.
The typical business owner I meet focuses their attention on bringing in more and more revenue. The pattern is: more leads -> more clients -> more sales. So, revenue goes up, and everybody celebrates.
Unfortunately, this cycle ignores a very important part of business ownership – managing expenses. Expenses tend to go up with revenue. They may even rise faster than revenue because they include things like marketing and advertising, tools, and new hires.
However, some business owners are so busy celebrating impressive revenue gains that they miss the story their bank account is telling them.
A Digits survey found that 56% of small businesses make decisions each month with incomplete financial information. And 80% were caught off guard by rises in expenses. They couldn’t see the rising expenses coming because they were either looking at the wrong numbers or no numbers at all.
This is exactly what happened to the restaurant owner. Revenue was coming in. People love her food. Everyone on the outside saw a great business. But the truth of the numbers was ignored because no one was looking at them. Look, revenue is flashy and fun. But it’s a vanity metric. It doesn’t tell you anything about how much money you’re keeping. And what you can take home is absolutely vital information.
What Poor Financial Awareness Is Really Costing You.
The repercussions of poor financial awareness are rarely dramatic, at least not at first. It’s often just a slow leak that you don’t notice until the damage is done.
Profit Leaks
When you don’t track your numbers, small losses compound. They can be things like a subscription you forgot about, pricing that you’ve not updated in a couple of years, or a service offering that costs you more than you bring in from it. Taken one at a time, they aren’t breaking the bank.
However, over the course of a year? They can add up to thousands, if not tens of thousands, in lost profit.
Remember, the profit that’s hiding in plain sight only stays hidden when you’re not looking. (Hmmm, maybe I have a future as a writer for a tea bag company?)
Decisions Based on Gut Instinct Instead of Data
I’m all about trusting your gut for a lot of things. However, if I have data to back up what my gut’s telling me, I sleep better at night.
And when it comes to business, without financial awareness, EVERY decision becomes a guess. When you don’t know your numbers, you either say yes to everything and hope it works out or you say no to everything out of fear. Neither position will get you where you want to go.
Stress That Spills Over into Everything
The anxiety that comes from not knowing where you stand financially is unlike any other. It’s ALWAYS there. It wakes you up at 3 am. It makes you second-guess decisions you’ve already made.
And the saddest part is that it’s completely unnecessary if you know your numbers. (Not knowing your numbers is a HUGE waste of time and energy! I know because there was a time when I didn’t know mine.)
Where to Start When You Don’t Know Your Numbers
Sometimes the most courageous thing you can do is to just start. And when it comes to knowing your numbers, the place to start is with these 3 things.
- Know Your True Delivery Costs. This requires that you specifically factor in everything it takes to deliver each of your products or services, including your and your staff’s time.
- Know Your Real Profit Margin. Your profit margin is how much profit or net income you have compared to revenue or gross income, expressed as a percentage. Blah, blah, blah… right?
So net income is your revenue minus your expenses. Your expenses include the obvious things like rent, cost of goods sold, salaries, but also the not-so-obvious like software, subscriptions, the conference you went to, and the contractor who helped you deliver that big project.
This is one of those things where I think the words are worse than the math, but then again, I like math. In case you do too, here’s the equation: - Know Your Cash Flow Pattern. This is all about when money hits your bank account, when it goes out, and if there are gaps between the two. The gaps are where problems can happen, even for profitable businesses.
Once you know these 3 things, you’re ahead of most business owners.
What Is True Financial Awareness in Business?
At its most foundational level, financial awareness for a business owner means knowing whether growth leads to profit or just more work.
It goes beyond reading a P&L statement and hiring a bookkeeper. It means knowing which numbers matter, why they matter, and what to do when they tell you something is wrong.
I know, financial awareness isn’t the most exciting part of running your business. However, it is a very necessary part of running a successful business.
Remember the restaurant owner who spent six months ignoring her numbers? She didn’t start out to fail.
She was very excited to open her restaurant, and she cared deeply about making it a great experience for her patrons.
If she had only understood her numbers BEFORE opening her doors, she might have seen a way to get to where she wanted to go instead of finding herself where she is today.
Despite how scary the numbers must have seemed to her initially, they weren’t her enemy. They were simply there to provide guidance.
If this post hit a nerve and you’re wondering what your next move should be, let’s have a brief chat.
