Elisabet Ruiz-Dotras, Professor and researcher at the UOC’s Economics and Business Studies, explains the role that financial knowledge plays in the success of a business.
The business fabric of an economy is a fundamental element for creating employment opportunities and improving the economic wealth of a country. The European Commission (2006) has pointed out on different occasions that economic growth and employment depend on public support for the creation of new companies. However, it is not that simple to start a business and the paperwork and requirements to complete can sometimes be daunting .
Over the years, motivated by promoting the entrepreneurial spirit of people, scientists and academics have studied and analyzed the motives, reasons and characteristics that lead a person to start a business. Most of these studies primarily focus on how business opportunities are discovered and exploited . In other words, they basically analyze how people are capable of detecting new needs or market opportunities. However, other studies have recently focused on more personal aspects, analyzing attitudes and beliefs linked to business intentions and behaviors.
Can anyone undertake? Do you need a special ability to start a business?
Different scientific investigations (Engel et al., 2014; Akadiri et al., 2017; Brändle et al., 2018) have shown that a key element that defines the entrepreneur is the entrepreneurial ability to believe in him or her (entrepreneurial self-efficacy or business self-confidence).
Bandura (1997) in his theory coined the term “self-efficacy” and showed that self-efficacy consists of a person’s belief in their ability to succeed in a particular situation . Bandura’s self-efficacy theory states that what one believes about oneself and one’s possibilities determines the way one thinks, behaves, and feels..
The same thing happens in the business field, if a person believes that he is capable of starting a business, he already has the first ingredient to carry it out . And, in fact, research shows that individuals with a strong belief in their own abilities and skills to start a business are more likely to show a positive attitude towards starting a business (Barba-Sánchez & Atienza-Sahuquillo, 2011).
Thus, far from the ability to spot business opportunities or come up with ideas, the personal confidence of believing in one’s entrepreneurial abilities is a crucial factor for people who want to start a business. The personal characteristic of believing that you have the skills and abilities to be a good businessman or businesswoman determines the decision to start the path of undertaking.
Interestingly, this ability to believe in oneself is not a formative subject in any study plan. And, in addition, the security and ability to believe in oneself, often develops in a person’s early ages, between approximately 2 and 8 years old.
Are knowledge and education important for entrepreneurship?
If someone would like to start a business, but does not have the courage to do so because their self-confidence level is low, another important element that can help improve this self-confidence is education.
The European Commission (Alessandrini et al., 2019) pointed out that the first two challenges faced by entrepreneurs are education, which must provide the adequate foundations for the development of business skills; and the difficulties of access to financing, coupled with the complexity of the financial markets........
An adequate set of skills for financial management is one of the most critical competencies in the creation and development of new companies, since the lack of financial knowledge hinders entrepreneurial activity , mainly among young and inexperienced.
Although one does not need to know everything to start a business, it is necessary to surround yourself with trusted people who do know, and it is essential to properly understand and interpret the numbers of a business; since it would be equivalent to a doctor knowing and knowing how to understand the vital signs of his patient.
However, different surveys on financial training and knowledge carried out around the world in recent years (Klapper et al., 2015; Organization for Economic Co-operation and Development, 2018) have highlighted the need to improve knowledge and skills. in financial matters of the citizens of the different countries. The 2018 OECD report (Organization for Economic Co-operation and Development, 2018) once again points out the need to improve levels of education in financial matters, affecting both the young and adult population.
A study at the Open University of Catalonia (UOC)….
A study carried out by UOC researchers (Ruiz-Dotras & Lladós-Masllorens, 2022) on entrepreneurial intentions revealed that of the different factors that can intervene in deciding to start a business, financial and numerical knowledge, as well as confidence of each person in their abilities, are essential for individuals to launch their own business. Both characteristics complement each other, that is, individuals who do not have a great entrepreneurial self-confidence in themselves , their desire to undertake responds to their high financial and numerical knowledge. These results confirmed, therefore, that the lack of business self-confidence can be replaced with a high level of financial knowledge and calculation to estimate risks.
Likewise, the study also revealed that individuals who do not have either of the two characteristics need to have other compelling reasons to really decide to start a business, such as being unemployed or having a business family environment that acts as a model. .
The study also found that the majority of those surveyed lacked good financial and numerical knowledge, as well as the ability to correctly assess risks, essential factors for an entrepreneur.
Therefore, financial knowledge and risk estimation skills are essential components of business decisions and, consequently, individuals intending to start a business must be prepared for it.
It is therefore necessary to promote government measures that support the inclusion of financial content in the educational system, in order to foster a greater business culture in society in the absence of business self-confidence.
What is the key to success?
Elements such as financial and numerical knowledge, as well as each person’s confidence in their abilities, are essential for individuals to launch their own business. But the success of a business does not depend exclusively on these characteristics or the business idea, but also on other factors.
Thus, it is not only necessary to be present in the right place at the right time or detect needs, but it is also essential today to be present and active on social networks, segment and differentiate yourself from your competition, get to know and serve your customers well. , have a flexible, scalable and scalable business, and above all have security and self-confidence to make the best decisions accompanied by a good team.
In a world as changing as the one we live in, knowing the needs well, detecting opportunities and correctly evaluating the risks can considerably help success. But it is also necessary that, whatever the business, it be lived with passion and respond to our principles and values.