Small busines own­ers wor­ried by lack of fi­nan­cial lit­er­acy

Irish Examiner - - Money & Jobs - John Daly

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.

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