As business owners we have to know a lot of things about a lot of things. It can be overwhelming to say the least. Some of the things that we don’t know, we outsource. Don’t know how to design our logo – we hire a graphic designer. Don’t know how to build a website – we hire a web development team. Don’t know how to market – we hire a marketing company. Do you see a pattern here? Usually from a sales and marketing perspective, we place enough importance on the task that we will outsource it, learn it ourselves, or hire an employee, so that we can do it internally.
The one area that we, as business owners, are still falling short is in the area of Financial Literacy. Knowing what our financials are, what the numbers represent and what that can mean to our business. As much as I was aware of this deficiency in the small business circuit, I was stunned by how deficient we are.
The Reality
There was an article in the Toronto Star talking about a survey that was conducted among small business owners. The survey tested, you guessed it, financial literacy in small business owners.
Here is an excerpt from the article:
“While 93 per cent of entrepreneurs surveyed believe they possess an average or even advanced understanding of financial management principles, 39 per cent failed a 10-question financial literacy quiz, and 57 per cent achieved a score of 50 per cent or less”
The full article Many Canadian entrepreneurs lacking in basic financial knowledge is available online.
Does that surprise you? Shock you? I must admit that I was surprised at the results. The quiz was developed by Intuit, the makers of the QuickBooks accounting software program. True it was only a really short quiz – 10 questions, but is that only an indication of how bad things really are? I’m not even sure that my blog title is correct, it might be more accurate that Small Business Owners get an F in Financial Literacy.
The Canadian economy relies so heavily on the small business sector. The last stats I read indicated the 42% of all jobs in Canada are created by companies that have less than 100 employees. That’s us, and we are vital to both our local economy and national economies.
What Does It Mean?
The stats are so disturbing because if business owners don’t possess the financial knowledge they need, who are they relying on – their accountants and their bookkeepers. Accountants – no problem – regulated industry, and so they will understand the impact of the financial numbers and explain that to their clients. The problem- how often do you meet with your accountant – once a year? Maybe twice? So 9 or 11 months of the year you are running blind. Or you are relying on your bookkeeper to make sense of the numbers and hopefully let you know what needs to come to your attention.
Hence the scary part. Bookkeepers – unregulated industry in Canada. Yup, you heard it – no qualifications, no certifications, no minimum education level needed to call yourself a bookkeeper. So that person that is filling in the gap for you, may not know how to do it properly. And if they don’t know it, and you don’t know it, then who does? Nobody…..that tends to be the case for most small businesses. That probably also plays a big role in explaining why 80% of small businesses fail in the first 3 years.
The Solution
So now that you know there is a gap, what can you do to fill it? And it must be filled. The success and long term viability of your business depends on it.
To fill the gap effectively you need to hire the right person to do your bookkeeping and looking after your financials on an ongoing basis. But how can you do that? Quite honestly, how can you hire someone to fill a position that you don’t understand yourself? You can ask questions of your bookkeeper, but how will you know if they are giving you the right answer?
So we’ve developed a test. Yup…..back to basics…. .a test that will determine if your bookkeeper is a data entry person or has the understanding needed to fill that gap properly for you.
The Bookkeeping 101 Assessment Exam is the first step to make sure that you have the right person on the right seat of the bus. Heck, if you aren’t that financially literate yourself, they could very well be driving the bus!
The second step is to educate yourself. There are tons of resources available online and offline to help you familiarize yourself with the fundamentals of your financials.
We’ve actually written some previous blog posts which may help you get started. The balance sheet is usually the most misunderstood, so hopefully this will get you started in the right direction:
Accounting and Bookkeeping Basics – Part 1 – What is a Balance Sheet?
Accounting and Bookkeeping Basics – Part 2 – Current Assets
If you want to take the Intuit test yourself, you can find it at www.knowyourworth.ca (edit: this offsite resource is no longer available) and let’s ensure that you have the understanding you need so that your business doesn’t just become another statistic.
July 1, 2023
