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Argumentative Essay: Inevitable Success in Business: Financial Literacy as the cornerstone

of contemporary success

Nursultan Davletyarov

School of Sciences and Humanities, Nazarbayev University

WCS 150: Rhetoric and Composition

Dr. Carlos Manuel Abaunza

November 26, 2023

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Nowadays there are approximately 335 milon companies around the globe, and the main

purpose of all types of businesses is to succeed and get ahead in sustainable growth, economic

development, and recognition. Some of them can achieve success effortlessly in a short time

after they were founded, some of them may need more time to become successful, and others can

not succeed at all and leave the market. But why some of the businesses can reach their final goal

and get ahead while others cannot? Over the course of history, the achievement of success was

always affected by numerous different factors, each undergoing changes over time. It is hard to

state the one and only factor that can solve any problem of enterprise. In the modern world, apart

from management and leadership, innovation, adaptability, and many other factors that affect the

performance of the enterprise, there is financial literacy of the entrepreneur plays a significant

role in shaping and determining the future of any company.

Financial literacy refers to the ability and knowledge of individuals to understand and

manage various financial aspects of their lives. It involves possessing the skills and insights

necessary to make info effective financial decisions, from day-to-day budgeting and saving to

more complex matters such as investing, borrowing, and retirement planning. All entrepreneurs

have different levels of financial literacy which depends on their background. Knowledge of

finance is not taught at schools, unfortunately, so most of the people are financially illiterate. In

the case of entrepreneurial ventures, businesspeople tend to have a higher likelihood of

possessing advanced financial literacy. However, a significant number of entrepreneurs did not

have the opportunity to learn about finances in their lives. In this essay, I will argue that there is

a significant positive correlation between entrepreneurs' financial knowledge and their

company's performance because financially literate people make fewer wrong decisions in

business, and proper financial practice can transform financial knowledge into business success.

Moreover, people with advanced financial literacy tend to have more revenue in a short time.
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Seven aspects of financial literacy, which are access to credit, financial awareness,

diversification, debt management, bookkeeping, risk management, and saving, significantly

affect business performance by increasing its overall performance and making it more resilient.

Entrepreneurs who have a comprehensive understanding of these financial dimensions are better

at navigating the business landscape, ensuring the resilience of their ventures in an ever-

changing economic environment. Those seven spheres of finance, allow entrepreneurs to have

better problem-solving and decision-making skills of a person, which are key reasons for

business development. Consequently, these dimensions in general, cause a 65.6% change in the

amount of sales (Muhammad & Wan, 2019). Apart from performance, financial literacy plays an

important role in business survival:

To establish the influence of financial literacy on business performance. The study found

that financial literacy has a statistically significant entrepreneurial business that enables

entrepreneurs to avoid business failures triggered by poor financial decision-making.

Studies have also confirmed that financial literacy influences the performance of the

business enterprise (Muhammad & Wan, 2019, p. 89).

That means that financially illiterate people have more chances of business failure, as they make

wrong decisions more in leading their company. Hence, having financial knowledge in these

seven dimensions and using them in practice in companies benefits entrepreneurs considerably.

The proper utilization of financial knowledge in the enterprise is another important aspect

of success because it is the product of embracing correct practice. Financial knowledge can lead

to success in business thanks to a third party which is financial practice. It is claimed that

financial knowledge and financial practice are two different things in the entrepreneurial world

(Asri & Ferdous, 2015). Financial knowledge means that the person has a correct understanding

of money-related activities. Financial practice is proper management and execution of financial

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operations to maintain the stable operation of the business. So financial practice has a mediating

relationship that connects financial knowledge to business success. The study suggests that

knowledge of finance and entrepreneurial success are not connected, although, financial literacy

is positively correlated with how good finances are exercised, which in turn impacts the

business's success (Asri & Ferdous, 2015). Therefore, both good knowledge of finance and

proper financial practice are equally crucial when it comes to succeeding in business. Moreover,

reviewing and analyzing the financial position of the business through different reports is one

more way of introducing a proper practice into an enterprise. Some experts believe that “100%

admitted that the owner’s inadequate financial literacy was at the core of avoiding the review of

the financial statements” (Dahmen & Rodriguez, 2014, p. 11). That is why financially literate

people have more chances of business success than other groups without good financial

knowledge and practice.

Financially illiterate people have fewer chances of their business survival than

entrepreneurs with proficient financial skills, as they make more mistakes that lead to the

collapse of the enterprise. This trend can be seen from the comparison between entrepreneurs

from minority groups and other businesspeople. Individuals in the first category possess a

limited understanding of finance, resulting in a less resilient business. Scientists claim that “The

lack of financial knowledge, correlated with poor financial or business management skills, often

leads to 105 exclusion, which compels behaviors such as high-interest credit card and payday

lending usage that are in direct opposition to successful business behaviors” ( Jackson, 2021,

p.104). Therefore, minority groups who are financially illiterate have more probability of

business failure and poor business performance with less profit, caused by poor financial

management skills. In addition, reviewing financial statements, and records about the financial

performance of the company is one more thing that is associated with financial literacy and half

of business owners failed to consistently examine financial statements. As a result, 6 out of 7 of

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such enterprises were facing financial challenges, because their financial literacy level was too

low to review financial statements regularly and make correct decisions based on them (Dahmen

& Rodriguez, 2014).

On the other hand, some financially literate entrepreneurs may also have low resilience in

their companies, as these people also can lack risk management skills. There are mainly two

types of financial literacy, basic and advanced. Basic financial literacy refers to a fundamental

level of financial knowledge which includes an ability to make informed decisions about

financial matters related to entrepreneurship. Advanced literacy includes more complex topics

related to accounting and finance that may be relevant to managing and growing a business

(Trombetta, 2023). Businesspeople who possess knowledge in advanced financial literacy, which

can also be referred to as advanced accounting, are good at debt aversion and cash-oriented

management. But, as there is no risk management in advanced financial literacy, these types of

entrepreneurs are risky, so their companies are at greater risk of failure:

Entrepreneurs with a low level of basic financial literacy but a relatively high level of

advanced accounting and finance literacy. This combination can give raise to a ‘‘Risky”

approach to financial management. The perception of risk is low, and a relatively higher

importance is given to financial and economic performance compared to cash

accumulation. (Trombetta, 2023, p. 10)

People who have a comprehensive understanding of advanced accounting and financial literacy

skills might be too confident in managing a business, so they are more likely to make mistakes

that will lead to the downfall of their business.

Nevertheless, people with advanced knowledge in finance have a more profitable

business than financially illiterate people. The survival of a company is not the only indicator of
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business success, as in some cases it will be more advantageous to entrepreneurs to make more

profit in less time. As Trombetta claims “The fact that this is a risky but potentially profitable

way to manage a business is reflected in the fact that UK ventures are those that, on average, last

less but sell more” (2023, p. 10). This kind of entrepreneurs, who are mostly found in the UK

according to the study, are called risky, they tend to be less resilient but more profitable.

Furthermore, the entrepreneurs with accounting background turned out to have higher annual

turnover and annual profit from their business, in comparison to their counterparts who do not

possess any knowledge in accounting (Anisiuba & Chika, 2017). There are also people who

achieve higher profits in their company without any background knowledge in accounting, but

these people use the services of accountants. In other words, entrepreneurs who have any kind of

accounting practices in their business have more profit than those who do not. Hence,

entrepreneurs with advanced financial literacy and accounting practices within an enterprise tend

to have more revenue in a shorter period, which is highly beneficial for a company.

In conclusion, financially literate entrepreneurs are less exposed to business failure and

can generate more profit from their company, because they make fewer wrong decisions

regarding their company, execute financial operations better as they have better practical skills,

and have more annual revenue. Overall, financial literacy is a very powerful tool that can be used

to boost the performance of any company in any sphere. Owners of enterprises should possess

better knowledge and skills in financial management, so they can achieve greater results in their

business and in their personal lives. Fundamentally, financial literacy is a cornerstone of success

that helps business owners not only cope with the complexities of their operations but also avoid

obstacles and move towards long-term success and wealth.

In the modern world, where money is the most valuable and important resource, similar

to enterprises, the personal life of everyone is highly dependent on the financial state. Therefore,

financially illiterate people are more likely to suffer from financial problems. Myriads of people,
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even though they work hard, are in enormous debt, living their lives from salary to salary. The

lack of financial literacy does not allow them to solve their economic problems on their own,

which means that finances do, in fact, play a crucial role not only in the business sphere but in

the everyday lives of everyone. Thus, it would be great if financial literacy were taught to us

from an early age in our schools so people would understand the importance of financial literacy

and have a solid foundation of financial knowledge, enhancing their ability to manage their

resources wisely. Ultimately, fostering financial literacy is not only an investment in the success

of businesses in the market but also an alleviation of people's personal issues with debt and

financial instability.
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Reference

Anisiuba, C. A. (2017). Place of Accounting Knowledge in Entrepreneurial Success in

Nigeria. IJSAR Journal of Advanced Management and Social Sciences, 4, 152-171.

Dahmen, P., & Rodríguez, E. (2014). Financial literacy and the success of small businesses: An

observation from a small business development center. Numeracy, 7(1), 3.

Jackson, J. L. (2021). Financial Illiteracy and Minority Small Business Failure. ProQuest

Dissertations Publishing.

Khadijah Muhammad Usama, Wan Fauziah Wan Yusoff. “The Impact of Financial Literacy on

Business Performance.” International Journal of Research and Innovation in Social Science

(IJRISS), October 2019:

https://www.researchgate.net/profile/Muhammad-Usama-12/publication/

346939404_The_Impact_of_Financial_Literacy_on_Business_Performance/links/

5fd3249da6fdcc697bf711f4/The-Impact-of-Financial-Literacy-on-Business-

Performance.pdf

Moha Asri Abdullah, S. M. Ferdous Azam. “Mediating Relationship of Financial Practice

between Financial Knowledge and Business Success: An Empirical Study on Malaysian

Small Enterprises.” British Journal of Business Design & Education:

https://www.bjbde.org/wp-content/uploads/2016/05/Pp-1-BJBDE.pdf

Trombetta, M. (2023). Accounting and finance literacy and entrepreneurship: An exploratory

study. Journal of Accounting and Public Policy, 42(2), 107078–.

https://doi.org/10.1016/j.jaccpubpol.2023.107078