Nowadays,
the economies of different countries are impacted by the small-medium
entrepreneurship (SMEs) to a great extent. SMEs open up new employment
opportunities, they boost the overall growth rate of the country, and most
importantly increase competition in the marketplace. In Azerbaijan only in
2015 the investment from SME-s to the main capital has been 807169300 AZN
which is higher than previous years. Although in Azerbaijan the booming
sector is oil sector, and wages are higher in it, however, labor resources do
not run into this sector. Because there is no resource movement, people will
be employed by SMEs. Nevertheless, there are still several problems that are
real obstacles for the development of SME-s. One of biggest problems is the
financial literacy. Since people are not well-informed about managing finance
of the new entrepreneurship, they face huge difficulties when it comes to
managing the cost-related issues. Insufficient financial literacy is one of
reasons that people with really useful ideas suffer when they want to
implement their business plans. Financial literacy is necessary basically
because when SMEs begin to their businesses they have problems with borrowing
money from the banks. Banks do not take a risk by lending money to SME-s
because there is a probability that entrepreneurs will not be successful.
Banks check all pros and cons of new business and decide whether or not to
give credit to it. The interest rate on credits given by banks is also so
much higher in Azerbaijan which is between 24% and 36%. That is why
businesses can not afford to take money from bank, and even when they take
this credit there is huge possibility that they will not be able to return it
back. According to statistics 94% of SME-s finance their businesses by their
own funds and only 4% of them raise capital through bank loans. Thus lack of
sufficient funds can be mentioned one of the biggest reason of business
failure. In terms of government contribution, opening the fund providing
centers with lower interest rate would be helpful which has already been
opened in Azerbaijan and offers credit with 6% interest rate. In this case
people who want to start their new businesses are not obliged to borrow fund
from banks with higher interest rate. These fund providers facilitate the
beginning process and stimulate small-medium entrepreneurs. Even if the
people have calculated all costs related issues to begin the business like
labor and material costs, or overheads, and are successful in initial processes,
they can still confront with the financial problems during this business
which shows that managing financial funds must be in all stages of business.
They do not estimate the expenditures correctly, and can not manage the cash
flow efficiently when it comes to operating the business. Even when the
entrepreneurs have enough money to operate the business sometimes they fail
in it. That means business owners suffer from financial literacy and this is
the impediment that makes business goes into bankruptcy in earlier stage of
its life. 40% of small business owners see themselves as financially
illiterate. To cope with all these problems firstly we should solve the
financial illiteracy problems. There are so many ways that both government
and society can contribute their fair share in order to settle this issue.
When owners are doing their business they can cut the costs by trimming the
inventory level, decreasing overheads, or minimizing direct labor. In order
to minimize costs or expenditures entrepreneurs need the professional advice.
Increasing this type of consulting services would be helpful to people who
are in lack of financial literacy. With the help of consulting companies,
businesses that suffers from financial issues can achieve the efficiency by
lowering costs. Meanwhile businesses can hire financial advisor, but being
sure that he matches with the criteria what the business needs. People who
are employed in any sector or unemployed can have the idea about beginning
new businesses. However, due to financial illiteracy they are not able to
properly run their own business and the ideas die before realization. If
there is compulsory subject in high school which teaches how to manage
business finance and develop financial literacy that would really helpful for
those who have any plan about creating their own business. Because in that
case they are already familiar with financial aspects of the business and can
estimate all the expenditures properly. Especially students in high schools by
studying business, finance, or accounting they will be knowledgeable about
financial matters. That is why compulsory subjects in economics in high
schools can help to get rid of financial illiteracy problem. In order to
teach students about financial issues, teachers should also be well educated.
Thus, not only the students, but also the teachers should the main focus of
financial literacy training programs. Teachers should learn about new methods
of teaching styles that may benefit the future entrepreneurs. Sometimes new
small businesses have problems with giving higher wages which in turn causes
increasing in employee turnover or increasing stress among employees. This
directly affects to the work of employee, they are not so much willing to
work because they are not satisfied with salary. To avoid these kind of
problems employers can train their workers about financial management, so
they can actually manage their own money efficiently and work effectively.
Here financial literacy can make opportunity for small-medium entrepreneurs
giving lower wages without decreasing productivity by satisfying their
workers. Launching websites can be very helpful and an easier way of
increasing financial literacy. They can be managed by professional financial
managers and serve to the small entrepreneurs which are in lack of knowledge.
Businesses that need any consulting about expenditures can apply to this
websites and get professional advice to solve the problems. There can be many
videos about how big companies manage their finance and information about
them that are available for public. By doing so businesses can avoid spending
too much time and money to settle the problem. For those who have a new idea
and want to build their own business but do not have adequate knowledge about
financial issues there can be financial courses which only teaches how to
start a business and manage its resources in a most efficient way. There
should be lessons about budgeting and saving rationally. So whoever want to
implement their ideas can enroll these courses and benefit from them.
However, even if these type of courses exist people who are in lack of money
will not be able to enroll them and get education. So, it lays on government
that keeping adequate data and material to learn how effectively manage the
business. There should be published materials and manuals in an affordable
price for those who wants to build their own businesses. So they can learn
about financial issues by their own without spending too much money on
courses. Government can also build free of charge training centers which may
serve specifically for SMEs. In the marketplace there are huge companies
which have been SME beforehand. They are entrepreneurships which have
succeeded and became a big company because of good financial managing
accordance with the ideas. These big companies are familiar with the
situation of small businesses and have a great experience in this field. So
suggesting help to the new entrepreneurs in order to overcome this difficult
situation in exchange of something with agreement would be really helpful.
SMEs are new entrants for the market, and in the perfectly competitive market
their entrance should be easy. It is also a corporate social responsibility
for the big companies to act ethically and contribute their share to the
economy. They can do it in various ways such as making seminars. When people
begin to the business they can benefit from these offerings and cope all the
troubles they face. In most cases, males are more financially literate than
females, and the main reason is that women care about so many things that men
are not interested in it. For example, women shop not only for themselves,
but also for their kids, and when they are shopping they should consider so
many factors and make most efficient choice. So educating women about finance
would strongly decrease the financial illiteracy. If those educated females
begin to their own business they could be very successful at managing
financial problems. Even though all abovementioned solutions would help to
reduce financial illiteracy, people should be taught about finance in earlier
stage of their lives. There is a recent financial literacy program organized
by the Central Bank of Azerbaijan in order to support financial literacy
activities. This program is a big step toward educating people from the very
beginning time of their lives. Availability and abundance of such programs
will of course increase the financial literacy of the population and ultimately,
it will result in increased number of well educated small business owners. It
is also work for parents to educate their children in order to be financially
literate. Clearly this should begin with educating adults with financial
issues. Children should get used to spend their money in a way that they
could have few money, yet they are not in lack of anything. This can be in
many ways such as giving weekly money and seeing whether they waste the money
or manage it. They should be taught to spend efficiently. So even in future
stages of their lives they will know how to manage the funds rationally. This
will be like a habit for them when they need to start a business. Taking
everything into consideration, financial illiteracy are one of the main
impediments for the development of SMEs, and there several ways that can
increase literacy in financial issues. For instance, teaching students how to
manage the money in high school, increasing materials about business finance,
or opening finance courses for entrepreneurs. Implementing any one of the
aforesaid tools will indeed have an impact on decreasing financial illiteracy
of small entrepreneurs and boost the SMEs activities.

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