Research from cloud-based small business platform Xero reveals a notable gap in financial literacy among Canadian small business owners.
Although 47% or nearly half of small business owners rating their financial literacy as ‘high’, nearly half (43%) actively deal with fiscal challenges in their business due to a lack of financial understanding. In fact, Xero notes its latest Canada market report that 16% of those respondents have not yet recovered.
Canadian small business owners are motivated to launch their own businesses to achieve flexibility (69%), and financial benefits, with over half (56%) hoping to make more money and achieve personal financial goals.
The research report added that over half (53%) of Canadian small businesses also begin as side gigs.
According to the Xero report, the key reasons for moving to full-time include:
- An entrepreneurial calling or dissatisfaction with their previous career path (32%)
- An increased demand for products/services (27%)
- The side gig becoming more financially lucrative than their full-time job (23%)
As noted in the research study from Xero, pursuing a new business venture full-time can be “daunting,” especially when personal savings are on the line.
Almost three-quarters (71%) of Canadian small business owners cited pulling from their own funds and savings to begin and noted emotional challenges – such as overcoming “self-doubt” and “fear of failure” (47%) – as obstacles to starting their business.
Although many Canadian small business owners surveyed did not at first consider financial concerns a major priority when starting their business, they found them to be an issue after the company was off the ground.
Notably, nearly half (43%) have experienced fiscal challenges due to a lack of financial literacy, with 16% noting they have yet to recover.
The biggest financial literacy challenges cited by Canadian small businesses included: optimizing tax strategies (28%), implementing cash flow management (15%), developing long-term financial plans (14%) and implementing and sticking to budgets (10%).
Further, for when all else fails, only 37% of small business owners have a reserve fund available for emergencies, and 10% have no plan at all for unexpected expenses.
In the case that funds became immediately available, more than a quarter of Canadian small businesses (28%) reported paying off outstanding debts and saving for future emergencies (23%) as immediate priorities for their businesses.
While 44% of Canadian small business owners prefer to handle their finances independently, this approach may overlook insights offered by financial advisors, who can provide concrete analysis and advisory on topics such as tax optimization, budgeting and cash flow management.
With 21% of respondents using an accountant or advisor, many are missing out on the opportunity for extensive growth and organizational resilience.
Working with accountants / advisors improves financial decision-making, enabling small business owners to navigate challenges and capitalize on opportunities.
Survey Methodology
Xero’s research, carried out by ResearchScape, surveyed over 1,200 self-employed small business owners with 50 or fewer employees across North America, including over 250 in Canada.
ResearchScape is a market research consultancy specializing in customer surveys, and the topline results presented in the report were weighted to be representative of the overall population.
The findings highlight various trends in how small businesses get started and the financial hurdles they encounter as they grow.