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Survey assesses financial literacy of Canadian small businesses

By Julie King |

Do you know which costs are the most important for you to manage in your business, in order to succeed?

If you answered no to this question, you are not alone. In a recent survey nearly one quarter of Canadian small business owners were unable to identify the most important costs that they need to manage in order to succeed.

The survey, which was designed to assess the financial literacy of small business owners, was conducted for Sage North America by Angus Reid Strategies.

"Financially literate small business owners should have identified the most important cost they need to get under control," said Jamie Sutherland, vice president and general manager, Simply Accounting.

Twenty two per cent said they could not identify the "most important cost" that their business currently needs to manage.

"They [financially literate small business owners] are also more likely to spend more time on financial management, recognized cash flow as important to their business and are more likely to have learned about financial management from formal education rather than being self-taught," said Sutherland.

Cashflow is a critical for small business owners, with 51 per cent identifying it as one of the two most important aspects of financial management that are crucial to businesses success.

Not surprisingly, bringing in money, controlling expenses ranked high on that list.

Other important aspects cited were:

  • invoicing and billing (44 per cent),
  • managing costs (36 per cent),
  • financial planning and forecasting (20 per cent),
  • tax payments (16 per cent),
  • inventory management (6 per cent),
  • payroll (4 per cent), and
  • EI/CPP compliance (1 per cent).

The size of the business and length of time in business had an impact on financial literacy, which smaller, younger companies tending to be less financially literate.

Location also matters. Companies in Quebec and to some extent the Atlantic provinces had a lower level of financial literacy than those in other provinces and territories. The difference in Quebec is likely due to more businesses that are newer and smaller, explained Hamish Marshall of Angus Reid.

As a company grows it is more likely to delegate financial management tasks to employees. In companies with six or more employees, invoicing and billing is typically the first thing to be delegated (59 per cent), followed by payroll (44 per cent), inventory management (41 per cent) and accounting (33 per cent).

So where do small business owners look for advice on managing finances?

The top five resources are:

  1. Accountant / consultant (65 per cent)
  2. Internet (38 per cent),
  3. Contacts in the same industry (32 per cent),
  4. Government information (29 per cent),
  5. Friends and family (24 per cent),

Other resources small business owners rely on for advice are books, industry associations, mentors or former employees, employees and business education services.

Small businesses are most likely to outsource their accounting (39 per cent) while keep their invoicing / billing in-house (78 per cent). Almost half (48 per cent) outsource payroll.

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