Financial literacy is low in small firm owners
Fewer than half of small business owners believe themselves to have good financial literacy, a Small Firms Association survey reveals.
Over half do not read the monthly accounts for their business, the survey finds.
The Small Firms Association (SFA) today launched the ‘Financial literacy amongst Irish micro, small and medium-sized businesses’ report, in collaboration with TU Dublin, Microfinance Ireland, SBCI and Skillnet Ireland.
The survey was conducted by iReach.
Expertise
The level of expertise was greater as the size of the business increased but 80% of respondents said that the primary use of monthly financial statements was to inform their banks.
Only 11% of those surveyed rated themselves as having expert knowledge (these had either majored in finance in college or were fully qualified accountants).
And 35% of respondents with low to moderate expertise had received no financial training. Over half of respondents do not calculate basic financial measurements regularly, including gross margin per product.
SFA director Sven Spollen-Behrens said: “Our survey results highlight concern about the level of financial literacy amongst Ireland’s small business leaders.
Skills
“Unlike larger companies who have access to experts, the success of small firms depends on the financial knowledge and skills of the owner.”
The main findings of the SFA survey include the following:
- 81% of respondents said financial literacy was very or extremely important, but only 46% said they had good or expert knowledge of financial literacy. Respondents thought that only 19% of other Irish business owners had good knowledge;
- 51% of business owners do not read their monthly accounts on a monthly basis;
- About a quarter of respondents do not produce important financial reports like debtor/creditor lists and sales and expenditure reports, while 16% of respondents do not use monthly reports;
- 34% said that they use financial statements to make business decisions and 42% said that they do not understand financial statements; and
- 58% said they do not utilise financial statements as they believe that is the job of their accountant.
“Although it was commonly acknowledged that financial literacy is critically important, yet over half of the respondents stated that they do not utilise financial statements, as they believe that is the job of their accountant,” noted Professor Thomas M. Cooney, of the Technological University Dublin.
Value
Cooney is the lead author of the survey. He said that the data shows owner-managers do not recognise the value of using financial information to make better informed business decisions and generally avoid engaging with financial accounts due to a lack of knowledge.
SFA has recommended the development of financial literacy amongst owner-managers in SMEs. It also wants to develop financial literacy in young people.
Sven Spollen-Behrens concluded: “With the financial world becoming increasingly complex, there is a compelling need for small business owners to improve their financial knowledge and skills.”