Australian entrepreneurs have a lot of things in spades – ideas, passion, skills and the guts to start a business – but new research has revealed that our start-ups urgently need a helping hand when it comes to financial know-how if they are to survive in the long term.
The Intuit Financial Fitness Startup Study was conducted by Galaxy Research and surveyed 400 start-up owners nationwide to find out how much they knew about managing their business finances.
It included a 10-question quiz on key accounting concepts like the role of the balance sheet, accruals and depreciation, and how to improve short-term cash flow.
Actually, if you want you can first take the test here.
How did start-up owners perform in this Intuit quiz?
The results show that Aussie start-up owners really need to pull up their socks:
- Only three per cent answered all questions correctly
- Eight per cent could not answer any questions correctly
- Just 42 per cent managed to score five out of 10 or more
- 12 per cent scored only one out of 10
- All in all, the majority (58 per cent) did not pass
Business owners are failing even at just the basics. The majority could not correctly identify the role of a balance sheet (65 per cent) or define accruals (70 per cent).
Only around half (56 per cent) identified that depreciation does not affect the cash position of the business and two thirds (64 per cent) knew that collecting receivables on time improves the short-term cash flow of a business.
Nicolette Maury, Managing Director of Intuit Australia, pointed out that there are more than 500,000 Australians involved in start-up activity at any point in time, two million SMEs nationwide and that these findings show just how badly the nation’s entrepreneurs need more support.
“According to the Australian Bureau of Statistics, around one in four start-ups close their doors in the first year and only half make it through their third. However, with a solid financial foundation, we know budding talent can build stronger, more resilient businesses that will stand the test of time and help build a prosperous economy,” she said.
Many are actually aware they are doing it wrong
As part of the Intuit study, start-ups were asked to rate their own financial management skills and outline how they manage their accounts.
The research revealed that just 12 per cent of Australian business owners claim to have a thorough understanding of their finances and only two in five (40 per cent) believe their business is well managed.
Most (60 per cent) admit they could do a better job with their finances:
- 25 per cent admit they should pay more attention
- 16 per cent claim they don’t pay much attention to managing their finances as it tends to take care of itself
- 19 per cent look after their business finances even though there is a lot they don’t understand “Ah, I’ll just wing it”
Half of start-ups (53 per cent) are keeping their own financial records up to date and preparing their BAS, even though two in five (40 per cent) only have a basic understanding of finances. Only 19 per cent use an external accountant and just 12 per cent employ a bookkeeper or finance manager.
It is worth noting that among those who failed the test, half (51 per cent) prepare their own BAS. Of running before crawling…
Nicolette said the results confirmed that many are yet to discover and use the wide range of affordable, easy-to-use online financial management solutions, including cloud-based software which has now been in Australia for quite a while.
She highlighted the fact that most start-ups still use time consuming and error prone methods to manage their finances including spreadsheets (42 per cent) and manual methods such as ledgers, and even pen and paper (22 per cent).
Just 13 per cent use desktop software and only nine per cent use cloud-based accounting software, such as Intuit QuickBooks Online, which could enable them run their business from wherever they are and get the insights they need in real time so they can always make informed business decisions.