Do you know what accruals are, or how to improve your short-term cash flow? For far too many entrepreneurs, the answer is “no.” Fully 39% of 500 small business owners surveyed earlier this year failed Intuit Canada’s financial literacy quiz for entrepreneurs.
When the financial software provider conducted their initial survey in January, only 2% were able to answer all 10 questions correctly. Poor financial literacy contributes to 15% of startups failing in year one and 50% disappearing by year five, estimates Rob King, director of small business at Intuit Canada. “When you consider that 98% of our Canadian employer base [is] small businesses, those numbers are scary,” he says.
In a digital age where all you need is a website to establish a business, entrepreneurs often don’t look before they leap. Another study by Intuit Canada found that 69% of entrepreneurs launch their business within six months, and 30% of millennials start their companies just one month. Yet 62% of these business owners do not have a business plan and that number is even higher for millennials, at 69%. “People are starting businesses so fast, but without a business plan and financial literacy, they’re setting themselves up to fail,” says King.
King offers three suggestions to entrepreneurs to improve their financial literacy, and in turn, the likelihood that their startup survives.
Seek out professional advice: “Find an accountant to help you figure out your business plan,” advises King. “Meet with them to set it up, and have them show you how to maintain it and run it.”
Network: Canada has many communities for entrepreneurs—Startup Canada, Ryerson DMZ, MaRS, and many more. “These are great communities that will give you a chance to learn from others who’ve faced similar issues, and teach you to become more financially literate through their programs,” suggests King.
Leverage technology: “Millennials are super tech savvy, 30% run their business from a smartphone,” says King. “They should leverage technology to make them successful.” King recommends using applications that make it easy for entrepreneurs to build a business plan.
MORE FINANCIAL LITERACY:
- Are You Really Financially Literate? Test Yourself »
- Why You Should Help Employees Manage Their Money »
- The First Steps to Financial Smarts »
- Business Owners Lack Financial Literacy, Says Poll »
- 5 All-Important Accounting Tips for First-Time Entrepreneurs »
How did you do? Share your results and thoughts about financial literacy using the comments section below.