Australian entrepreneurs have a lot of things in spades – ideas, passion, skills and the guts to start a business – but research reveals startups need a helping hand when it comes to financial know-how in order to boost their chances of success.
The Intuit Financial Fitness Startup Study surveyed 400 startup 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 cashflow.
Financial Fitness Test Results
The research results revealed that only a few scored highly, while the majority (58 per cent) did not pass:
- Just four in 10 (42 per cent) managed to score five out of 10 or more
- One in 10 (8 per cent) could not answer any questions correctly
- 12 per cent scored only one out of 10
- Only three per cent of startup owners answered all questions correctly
- Men outscored women, with 48 per cent passing compared to 38 per cent of women
- Gen Y startups proved least financially savvy – just a quarter (26 per cent) passed, compared to four in 10 (44 per cent) Gen Xs and six in 10 (63 per cent) Baby Boomers
- 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 cashflow of a business
Nicolette Maury, Managing Director of Intuit Australia, said there are more than 500,000 Australians involved in startup activity at any point in time and that the findings highlighted the need for more support for the nation’s entrepreneurs.
“According to the Australian Bureau of Statistics, around one in four startups 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.
Understanding and Managing Business Finances
As part of the study, startups were asked to rate their own financial management skills and outline how they manage their accounts.
The research revealed just one in 10 (12 per cent) business owners claim to have a thorough understanding of their finances and only four in 10 (40 per cent) believe their business is well managed. Most (60 per cent) recognise they could do a better job:
- A quarter (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
- Two in 10 (19 per cent) look after their business finances even though there is a lot they don’t understand
Half of startups (53 per cent) are keeping their own financial records up to date and preparing their BAS, even though four in 10 (40 per cent) only have a basic understanding of finances. Two in 10 (19 per cent) use an external accountant and one in 10 (12 per cent) employ a bookkeeper or finance manager. Of significance, among those who failed Intuit’s financial skills test, half (51 per cent) prepare their own BAS.
Maury said the results confirmed many are yet to discover and use the wide range of affordable, easy-to-use online financial management solutions.
“Most startups 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 9 per cent use cloud-based accounting software.
“Intuit QuickBooks Online enables startups to run their business from wherever they are and get the insights they need in real time to make informative business decisions,” said Maury.
Supporting Startups and Closing the Gap
According to the research, there is also a range of options that startup owners believe could improve their business finances but only some recognise the need for targeted financial skills support:
- 19 per cent of startups said a mentor would be most helpful
- 16 per cent opted for a financial management course
- 12 per cent noted an accountant or bookkeeper would be their top option
- 12 per cent voted for online tutorials
Maury added that Intuit’s long-term plans for boosting financial fitness includes developing a Financial Fitness Bootcamp program that would provide resources and expertise for entrepreneurs and would run at selected Startup Weekend Australia events.
“Intuit is the national sponsor of Startup Weekend Australia and we’re committed to being part of the startup and entrepreneurial ecosystem in Australia, working with range of stakeholders including government,” she said.
Sam Birmingham, National Director of Startup Weekend Australia, said: “Financial literacy plays a major role in boosting the success rate of young companies. Arming Aussies with the tools to build and maintain a healthy business is vital and will ultimately contribute to long-term economic growth and innovation.”
To view all the findings from the Intuit Financial Fitness Startup Study, download the free eBook here. And to see how your financial skills stack up, take the test here. You can also join the conversation online via Twitter @QuickBooksAU.