Starting a business will always mean taking risks. The dynamism of Canada’s economy is rooted in the willingness of entrepreneurs and small-business owners who are willing to strike out on their own – some of them motivated to change the world, some of them simply driven by the desire to never have to call someone else “the boss.”
The assumption may be that small businesses – defined by Statistics Canada as those with fewer than 100 employees – have access to resources and know-how not available to the average person.
However, our research paints a very different picture, particularly for those on the small end of the small-business spectrum. For example, Intuit Canada’s research found that 58 per cent of Canadian small-business owners started with $5,000 or less.
Even more importantly, our research found that this start-up money is wrapped up in a tremendous amount of risk. We found that 50 per cent of small-business owners reported making a risky financial decision, such as taking out another line of credit in their first year in order to get their business up and running.
The reality is that these risks don’t always pay off. According to Industry Canada, a healthy 85 per cent of new small businesses survive their first year, but that number drops to 70 per cent after two years, and plunges all the way down to 51 per cent after five years.
Not surprisingly, one of the biggest reasons for this is a lack of financial literacy. The evidence comes directly from small-business owners themselves. The Intuit study found, for example, the following:
- The most commonly cited regret for small-business owners was that they didn’t pay enough attention to learning how to track and manage finances in their first year.
- One in three small-business owners we surveyed underestimated the amount of time they would spend on financial management.
Many small businesses also lack the right tools to get the job done. Roughly three in five (57 per cent of) small-business owners continue to use pen and paper for tasks such as cash flow, payroll, and taxes, instead of taking advantage of powerful financial-management solutions that save small-business owners time and money.
This isn’t a problem government can be expected to fix on its own. However, the creation of the Financial Literacy Leader within the Financial Consumer Agency of Canada does provide an opportunity for all of us who have a stake in small-business success to look again at how we can improve the education and resources available to Canada’s entrepreneurs.
Everyone benefits when more small businesses succeed. Small businesses employ 48 per cent of Canada’s private-sector labour force, and account for about 42 per cent of private-sector GDP.
Throughout November – Financial Literacy Month – attention is rightfully focused on helping consumers manage rising levels of household debt. It’s in everyone’s interest that equal attention is given to ensuring that Canada’s small businesses have tools and resources to manage the financial risks and rewards that accompany the entrepreneurial journey.