It looks like Canadian entrepreneurs aren’t as smart as they think they are, at least when it comes to financial literacy, according to the results of a survey sponsored by Intuit.
While nine out of 10 small business owners consider their financial literacy scores to be at least average, if not above average, four out of 10 failed a financial literacy quiz. The survey results are based on a sample of 500 small business owners (with up up to 99 employees) based in across Canada. The margin of error is within 3.7 percentage points, 19 times out of 20. They survey was conducted near the end of November 2014.
It might not seem like great results, but the good news is Canada’s small business owners have pulled up their socks slightly since Intuit last conducted the quiz in 2012. The amount of owners failing the quiz is down a full five per cent, and the amount that nailed it with a score of nine out of 10 is up five per cent to seven per cent.
Intuit, a financial planning software vendor, says that financial literacy is the most common cause of business failure and that entrepreneurs that aren’t up to snuff are risking their chances of long-term success. Owners with poor financial literacy aren’t just a risk to their own business, but the entire economy.
Going over the quiz scores of Canadian business owners, they could use a refresher on some accounting principles. Only 26 per cent understand the role of a balance sheet, down slightly from 2012. (Psst.. it’s to record assets, liabilities, and equity at a specific point in time). But they look more knowledgeable in other areas, with 90 per cent correctly identifying that by not buying insurance, they are “retaining the risk of loss.”
Across Canada, entrepreneurs in Atlantic Canada seem to be the most financially astute. Owners in that region lead the “great scores” category by a wide margin with 18 per cent (Alberta was next with eight per cent). Atlantic owners also had the fewest failures, with only 19 per cent getting a red F on their quiz results. Quebec entrepreneurs on the other had the worst results, with 61 per cent failing.
When you think about it, those Canadian entrepreneurs that said their financial skills were average were correct – it’s just that the average is not very good. If you want to see how you stack up to the business owners, try Intuit’s financial literacy quiz for yourself.