Report: Canadian small business owners’ financial literacy skills come up short

A CONCERNING skills gap among Canadian small business owners was made evident by Xero’s recent financial literacy survey of small business owners across Canada. The report found that nearly half (44%) of small business owners manage their finances on their own, despite nearly the same proportion (43%) reporting struggling to do so efficiently. 

Canadian small business owners are making the choice to pursue entrepreneurship for many different reasons, like achieving personal financial goals, greater flexibility, and other financial and personal benefits. What many may not realize when embarking on a business ownership journey, however, is that maintaining a certain level of financial understanding can be crucial to the long-term success of the business and thereby the value of professional advisory services should not be overlooked. 

Let’s explore the data from our recent report, and consider how accountants and bookkeeping professionals can better work with their small business clients to navigate challenges related to financial literacy and empower small business owners with the financial resources they need to grow their businesses. 

Canada’s financial literacy snapshot

First, let’s dig into the insights gleaned from the survey to get a better understanding of the current challenges small businesses are facing when it comes to financial literacy, and how accounting professionals can help. 

• Literacy gap: Nearly half (43%) of Canadian small business owners reported facing fiscal challenges as a result of poor financial literacy, despite 47% of respondents rating their financial literacy as ‘high’. Sixteen percent of respondents reported that they have yet to recover from financial issues stemming from a lack of financial understanding.
• Lack of advisory: Nearly half (44%) of small business owners reported that they prefer to handle their finances independently and only 21% are actively working with an accountant or advisor.
• Financial concerns: Twenty-eight percent of Canadian small businesses rated ‘optimizing tax strategies and accurately filing taxes’ as the chief financial concern for their small business. Developing long-term financial plans (15%), interpreting revenue and profit margin metrics (15%), and effective cash flow management and financial forecasting (15%) also emerged as primary concerns.
• Non-existent emergency funds: Only 37% of small business owners reported having an emergency fund at their disposal, and 10% reported having no plan in place in the case that they need emergency funds.
• Tackling debt top-of-mind: Respondents shared that if funds became available, their first order of business would be to pay off outstanding debts (28%) and then save for future emergencies (23%).

What small business clients need to know

As financial professionals, accountants and bookkeepers are able to analyze small business clients’ needs and can offer strategic advice on tax optimization, cash flow management and budgeting, among other things. As noted in the data snapshot above, less than one-quarter of small business owners engage with an accountant or an advisor on a regular basis—meaning that there is a significant opportunity to educate the small business audience on the value of working with a financial professional to help drive their business forward. 

The key here is to effectively communicate the value of bringing a financial professional into the picture. When approaching small business prospects, highlighting benefits like greater financial resilience, sustainable business growth, reduced decision-making pressure, and increased mental capacity are surefire ways to pique small business owners' interest. 

As we aim to close the knowledge gap, showcasing the return-on-investment that’s possible by engaging with financial professionals will hopefully make financial literacy a little less daunting for small business owners.

David currently leads Xero's US Enterprise Accounts teams. Where he and the team of innovators help to inspire the country's top 300 largest accounting firms along their journeys in modern cloud accounting. With a focus on consulting those firms on where they are today and how they achieve their cloud transformational journeys.

In the first nineteen years of his career, David Emmerman was a co-managing partner in the firm Emmerman, Boyle & Associates, LLC and there showcased his talent for working with small business clients and his team to develop a best-in-class accounting experience.  His passion for technology and extensive involvement with cloud-based solutions led him to a role with Xero as a National Ambassador, where he spent his time leveraging his background to educate some of the largest accounting firms on practice management and cloud adoption topics.