Financial Literacy Levels of Medium and Small Scale Businesses Owners and its Correlation with Firms’ Operating Performance: in Case of Hossana Town

Financial literacy is seen as an important instrument for the success of medium and small businesses, since it helps to understand and evaluate the information needed to make daily decisions that have financial impacts in companies’ day-to-day management. Therefore, the goal of this research is twofold: to assess the financial literacy levels of small business  owners (medium and small enterprises) in the Hossana Town and to analyze the relation between these results and the operating performance of those companies, as a measure of business economic performance. The study tests the hypothesis that, all other factors being constant, a higher financial literacy level of small business owners should motivate a better performance of the company.  The sample in this study is composed by medium and small businesses of the Hossana town in the three sub cities, and through questionnaires it was obtained the data needed to gauge the levels of financial literacy.   The results evidence a rather level of financial literacy among small business owners. And, the data also supports the existence of a significant positive correlation between financial literacy levels and  companies’ operating performance. This result highlights the importance of providing to small business owner adequate financial education on the expectation of improving their performance as business leaders