FINANCIAL AND ECONOMIC LITERACY

FINANCIAL AND ECONOMIC LITERACY

Definitions:

• Financial Capital: A central concept to explain success in entrepreneurship from an economic perspective is the availability of financial capital to start a new business. Financial capital is important for acquiring the necessary assets in terms of equipment and raw materials, avoiding liquidity problems, and thus ensuring ongoing operations. (Frese & Gielnik, 2014). • Financial bootstrapping: refers to the strategies taken by the entrepreneur to overcome funding constraints without relying on formal debt from banks and equity financing from investors. Some of these forms can be: owner financing (e.g., withholding own salary, employing relatives), minimization of accounts receivable (e.g., speeding up invoicing, charging interest on overdue payment), joint utilization (e.g., owners share and borrow resources from each other), delayed payments (e.g., delaying payments to suppliers and leasing equipment), minimization of capital invested in stock (e.g., optimizing stock, minimizing inventory), and obtaining subsidies (e.g., from government or public organizations) (Winborg &

Landstrom2001; cited in Frese & Gielnik, 2014).

Hint:

• Develop financial, economic and enterprising know-how. Descriptors: • Estimate the cost of turning an idea into a value-creating activity. • Plan, put in place and evaluate financial decisions over time. • Manage financing to make sure my value-creating activity can last over the long term. • Take business decisions based on understanding and knowledge of key business functions. Thread FOUNDATION Discover – Explore Relying on support from others INTERMEDIATE Experiment-Dare Building independence ADVANCED Improve-Reinforce Taking responsibility EXPERT Expand-Transform Driving transformation, innovation and growth

Understand economic and financial concepts. Explain simple economic concepts (for example, supply and demand, market price, trade, opportunity cost, comparative advantage). Be able to read and analyse income statements, cash flow, profit-and-loss accounts, balance sheets, explain their purpose and differences. Feel comfortable managing financial and business ratios (for example, return on investment, return on equity, burnt rate…) Use financial ratios to assess the financial health of my value-creating activity and compare it with that of competitors.

Budget. Draw up a budget for a value-creating activity.

Find funding (and legal constitution of the new venture). Explain the main types of income and sources of funding for families, start-ups, businesses, non-profit organisations, and the state. Judge the cash-flow needs of a valuecreating activity. Explain how to translate the monetisation process in terms of cash generation.

I can identify public and private sources of funding for my valuecreating activity (for example, prizes, crowd-funding, and shares). Apply the financial planning and forecasting concepts that I need to turn ideas into action (for example, profit or not for profit).

Apply for public or private business support programmes, financing schemes, public subsidies or calls for tenders. Create the economic and financial plan of the valuecreating activity, and balance the P&L and the cash flow according to the learning outcomes extracted from monitoring the progress of the activity.

I can raise funds and secure revenue from different sources, and manage the diversity of those sources.

Understand taxation. Explain the purpose of taxation and how it finances the activities of a country and helps provide public goods and services. Estimate the main accountancy and tax obligations I need to fulfil to meet the tax requirements for my activities.

Understand the overheads of the activity and their Estimate how my financial decisions (investments, buying assets, goods and so on) affect my tax. I can make financial decisions based on taxation schemes of my region/country and different countries and territories, as well.

Enterprising literacy Explain simple concepts of key business functions like marketing, sales, strategic planning, operations, structuring business deals and technical-legal aspects. Have an overview of small business management, including how to run and control the business effectively, and important procedures and systems such as recruiting, salary and reward structures, and financial monitoring. effects on the new venture.

I can explain that value-creating activities can take different forms (a business, a social enterprise, a non-profit organisation and so on) and can have different structures of ownership (individual company, limited company, cooperative and so on). (related to the legal constitution of the start-up. Could also include how to write partners agreement, and the committed responsibilities. Use enterprising knowledge to guide department heads of various business functions in effective planning and decision making. Share my knowledge and make all employees more literate entrepreneurially. Take key business decisions based on my in-depth knowledge of enterprise functions like marketing, sales, strategic planning, and others.