Survey: Nearly Half of Canadian Small Businesses Face Fiscal Challenges Due to a Lack of Financial Literacy

Xero study reveals 44% of owners figure out financial matters on their own, with nearly the same proportion facing fiscal challenges

Survey: Nearly Half of Canadian Small Businesses Face Fiscal Challenges Due to a Lack of Financial Literacy

Media Contact
Diandra Binney
Xero Communications
diandra.binney@xero.com

New research from global cloud-based small business platform Xero reveals a notable gap in financial literacy among Canadian small business owners. Despite 47% of small business owners rating their financial literacy as “high,” nearly half (43%) actively face fiscal challenges in their business due to a lack of financial understanding; 16% of those respondents have not yet recovered.

What it takes to get started

Canadian small business owners are most motivated to launch their own businesses to achieve greater flexibility (69%), and financial benefits, with more than half (56%) hoping to make more money and achieve personal financial goals. More than half (53%) of Canadian small businesses also begin as side gigs. The top 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%)

Of course, pursuing a new business venture full-time can be daunting, particularly when personal savings are on the line. Nearly three-quarters (71%) of Canadian small business owners cited pulling from their own funds and savings to start and noted emotional hurdles - including overcoming self-doubt and fear of failure (47%) - as barriers to launching their business.

Navigating financial challenges post-launch

While many Canadian small business owners surveyed did not initially consider financial concerns a top priority when starting their business, they indeed found them to be an issue once the business was off the ground. In fact, nearly half (43%) have encountered 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.

The importance of advisory

While 44% of Canadian 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, budgeting and cash flow management. With less than a quarter (21%) 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.

“Financial literacy skills are an essential resource for small business owners in every sector because they allow business owners to operate more strategically and better adapt to evolving market conditions,” said Ben Richmond, Managing Director, North America at Xero. “Equipped with financial literacy skills and the support from tools like Xero and professional financial advisors, Canadian business owners can feel empowered to make informed decisions that support the long-term stability and growth of their businesses.”

For more information on financial literacy for small businesses, visit our website.

Survey Methodology

Xero’s research, conducted by ResearchScape, surveyed more than 1,200 self-employed small business owners with 50 or fewer employees across North America, including more than 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, unveiled at Xerocon Nashville, Xero’s signature event for cloud accounting leaders from the U.S. and Canada, highlight trends in how small businesses get started and the financial hurdles they encounter as they grow.

About Xero

Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.