Small Businesses in the US Encounter Fiscal Challenges Due to Lack of Financial Literacy – Report

Research from global cloud-based small business platform Xero reveals a notable gap in financial literacy among U.S. small business owners.

Despite 55% of small business owners rating their financial literacy as ‘high’, half (50%) actively face fiscal challenges in their business due to a lack of it; 15% of those respondents have not yet recovered.

Many small businesses begin as side gigs, a trend that’s increasing with newer generations: more than two-thirds (67%) of Gen Z respondents reported starting their businesses as side gigs, compared to less than half of Boomers (48%).

The key reasons for moving to full-time include:

  • The side gig becoming more financially lucrative than their full-time job (35%)
  • An entrepreneurial calling or dissatisfaction with their previous career path (30%)
  • An increased demand for products/services (22%)

Admittedly, making the jump from a side gig to full-time can be daunting, particularly when personal savings are on the line.

Notably, the majority (61%) pointed to pulling from their own funds and savings to start, and noted emotional hurdles – including overcoming “self-doubt” and fear of failure (49%) – as some of the most “crippling.”

While many owners surveyed did not at first consider financial concerns a key priority when launching their business, they still found them to be an issue “once the business was off the ground.”

Of note, exactly half have encountered fiscal challenges due to a lack of financial literacy, with a staggering 15% noting they “have not yet recovered.”

In this particular case, financial literacy (or lack thereof) spans quite the spectrum: optimizing tax strategies (18%), implementing and sticking to budgets (16%), interpreting financial metrics (16%) and implementing cash flow management (16%) are listed as “most challenging.”

In addition to this, for when all else fails, merely 38% of small business owners have a reserve fund that is meant for unpredictable “emergencies,” and 13% have no plan for “unexpected expenses.”

Although nearly 40% of small business owners prefer to handle their finances independently, this approach may overlook “valuable insights” offered by financial advisors, who can provide concrete analysis and advisory on topics such as tax optimization.

With just 16% of respondents actively using an accountant or advisor, many are missing out on the opportunity for “continued, extensive growth” and organizational “resilience.”

Working with accountants and advisors improves financial decision-making, enabling small business owners to “navigate challenges effectively and capitalize on opportunities in today’s evolving business landscape.”

Ben Richmond, Managing Director, North America at Xero said that using tools like Xero and seeking the support of an accountant or advisor can “help small business owners significantly enhance their financial literacy, enabling them to overcome challenges and build a strong foundation for future success.”

Richmond added that financial literacy is vital for the health and growth of small businesses, as it empowers owners to make “informed decisions” as well as navigate external and internal landscapes,

Survey Methodology

Xero’s research, conducted by ResearchScape, has reportedly surveyed 1,021 “self-employed” small business owners with 50 or fewer employees across the U.S. from May 30 to June 4, 2024.

ResearchScape specializes in customer surveys, and the “topline” results presented in the report were weighted to be “representative” of the overall population.

The findings are said to highlight key trends in how small businesses get started and the financial challenges they encounter as they grow their operations.



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