Survey: Half of US small businesses encounter fiscal challenges due to a lack of financial literacy

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Oct 02, 2024, 09:00 ET

Xero study reveals 39% of owners figure out financial matters on their own, while only 15% use an accountant or advisor

DENVER, Oct. 2, 2024 /PRNewswire/ -- New research from global cloud-based small business platform Xero reveals a notable gap in financial literacy among U.S. small business owners. Despite 55% of small business owners rating their financial literacy as 'high', half (50%) actively face fiscal challenges in their business due to a lack of it; 15% of those respondents have not yet recovered.

What it takes to get started

Many small businesses begin as side gigs, a trend that's increasing with newer generations: more than two-thirds (67%) of Gen Z respondents reported starting their businesses as side gigs, compared to less than half of Boomers (48%). The top reasons for moving to full-time include:

The side gig becoming more financially lucrative than their full-time job (35%)
An entrepreneurial calling or dissatisfaction with their previous career path (30%)
An increased demand for products/services (22%)

Of course, making the jump from a side gig to full-time can be daunting, particularly when personal savings are on the line. Most (61%) cited pulling from their own funds and savings to start, and noted emotional hurdles - including overcoming self-doubt and fear of failure (49%) - as some of the most crippling.

Navigating financial challenges post-launch

While many 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, exactly half have encountered fiscal challenges due to a lack of financial literacy, with a staggering 15% noting they have not yet recovered. In this case, financial literacy (or lack thereof) spans quite the spectrum: optimizing tax strategies (18%), implementing and sticking to budgets (16%), interpreting financial metrics (16%) and implementing cash flow management (16%) are listed as most challenging. Further, for when all else fails, only 38% of small business owners have a reserve fund for emergencies, and 13% have no plan for unexpected expenses.

The importance of advisory

While 39% of 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 only 16% 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 is vital for the health and growth of small businesses, as it empowers owners to make informed decisions and navigate complex external and internal landscapes," said Ben Richmond, Managing Director, North America at Xero. "Using tools like Xero and seeking the support of an accountant or advisor can help small business owners significantly enhance their financial literacy, enabling them to overcome challenges and build a strong foundation for future success."

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

Survey Methodology
Xero's research, conducted by ResearchScape, surveyed 1,021 self-employed small business owners with 50 or fewer employees across the U.S. from May 30 to June 4, 2024. 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.

SOURCE Xero