Financial literacy is key to survival of small businesses

Understanding daily and seasonal cash flow and keeping a cushion of money on hand are some of the strategies for extending a company's life expectancy. Probably everyone has at least daydreamed of starting their own business. A trendy restaurant, a vintage clothing shop, striking it rich with a new killer phone app these are the dreams that keep entrepreneurs in the game. But a new study shows that however creative the concept, small-business owners often lack the financial literacy to understand what they’re getting into. And that’s a big reason why something like half of all small businesses fail within about five years. “Small businesses don’t fail because it’s a bad business. They fail because of cash flow problems,” Chris Wheat, director of business research for the JPMorgan Chase Institute and the lead researcher on the study, said this week.