Small busines owners worried by lack of financial literacy
Less than half of Ireland’s small business owners believe they have good or expert knowledge of financial literacy, and a similar percentage do not read their monthly accounts.
The Small Firms Association recently launched the ‘Financial literacy amongst Irish micro, small and medium-sized businesses’ report, in collaboration with TU Dublin, Microfinance Ireland, SBCI and Skillnet Ireland.
“Our survey results highlight concern about the level of financial literacy amongst Ireland’s small business leaders,” said Sven Spollen-Behrens, SFA Director.
“Unlike larger companies who have access to experts, the success of small firms depends on the financial knowledge and skills of the owner.” Other findings of the SFA survey included: 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; and roughly a quarter do not produce important financial reports like debtor/creditor lists and sales and expenditure reports, while 16% of respondents do not use monthly reports.
Over a third said that they use financial statements to make business decisions, while 42% said that they do not understand financial statements.
In addition, 58% said they do not utilise financial statements as they believe that is the job of their accountant. The level of expertise was greater as the size of the business increased, with 80% of respondents saying that the primary use of monthly financial statements was to inform their banks.
Respondents believed that 0% of Irish business managers generally had expert financial literacy, while 11% rated themselves as having expert knowledge — these had either majored in finance in college or were fully qualified accountants. 35% of respondents with low to moderate expertise had received no financial training, and over half do not calculate basic financial measurements regularly, including Gross Margin Per Product.
“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, College of Business, TU Dublin and lead author of the survey.
He further stated that “this report highlights that 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 a problemsolving approach that would address the key issues identified by small business owners.
The recommendations put forward in the report are: ensure that the development of financial literacy amongst owner-managers in SMEs is a priority for government by including it in the forthcoming policy on SMEs and Entrepreneurship under Future Jobs Ireland; develop financial literacy in our young people by exploring the primary and secondary school curricula to see where financial literacy could be included in a more meaningful way; create a digital platform and campaign to increase financial literacy expertise among small business owners; and raise awareness amongst education and training providers and professional bodies on the importance of integrating financial literacy within existing training and professional development courses targeting SMEs.
“With the financial world becoming increasingly complex, there is a compelling need for small business owners to improve their financial knowledge and skills,” concluded Sven SpollenBehrens concluded.
“The SFA and its partners are committed to addressing this issue and will continue to work towards raising financial literacy amongst small business.”
Sven Spollen-Behrens: Success of small firms depends on their financial knowledge.