After going through a seemingly endless tax season last year, tax season in Canada is officially launching next week. Small businesses have been faced with a number of financial challenges brought on by COVID-19. Our latest Canadian financial literacy survey examines this along with what economic recovery looks like for the many small businesses that fuel the Canadian economy.
Findings from the independent survey of 800 Canadian small business owners found millennial small business owners (ages 18-34) tend to overestimate their financial literacy. While the majority of millennials surveyed consider themselves financially literate (62%), on average, the group received a ‘D’ letter grade when presented with a series of true or false financial literacy questions — the poorest grade among respondents across generations. In comparison, Generation X (ages 35-54) earned a ‘C’ letter grade, while Baby Boomers (ages 55+) earned a B-.
It’s a concerning statistic given that millennial business owners shared their primary business goal for 2021 is ‘to be better prepared for financial instability in 2021’. It’s never been a tougher time for small businesses, and the findings reveal a gap between perceived and actual financial literacy among millennial business owners. Business owners may be leaving money on the table, especially since 24% of respondents in the survey said they would rather get a root canal than organize and file their taxes.
Other notable findings from the survey include:
- High degrees of financial trust in social media: Across generations, millennials (40%) were more likely to trust social media platforms, including Facebook, Instagram and TikTok, as sources of information for their business financials. Trust was significantly lower among Generation X (28%) and Baby Boomer (17%) respondents.
- Pessimism for the future: When asked how the release of COVID-19 vaccines had impacted their outlook on the future of their business, millennials felt far less hopeful, with 33% reporting unchanged feelings of pessimism. Xero’s Young Entrepreneur Report revealed just over one-fifth of Canadian small businesses are owned by millennials, making this another concerning statistic for the future of small businesses in Canada and the longevity of their operations.
Brush up in financial literacy with an accountant or bookkeeper
Canadian accountants and bookkeepers have an opportunity to provide guidance and advice to their clients to improve financial literacy. Tools like Xero can also be leveraged to achieve financial goals.
Here are three ways advisors can help their small business clients build financial literacy and resiliency in 2021:
- Understand cash flow: We know that cash flow is the lifeline of any business. Many business owners don’t have a good understanding of their current cash position and how much ‘buffer’ they have. If small businesses can identify future projections of money in and money out, they can make adjustments to maintain a healthy cash flow, which can make all the difference to a business surviving.
- Improve operations with technology: As we’ve seen throughout the pandemic, there’s no better time to help clients get online and into the cloud. When it comes to managing their finances, businesses are seeing the importance of having accurate and up-to-date financial records so they can make informed decisions about their business. Using cloud-based tools like Xero to automate finances and accounting can help show what the health of a business looks like now, or several weeks into the future.
- Demonstrate value: Many small business owners are used to taking a ‘do it yourself’ approach, but embracing a ‘do it together’ mindset and partnering with a trusted advisor can help them gain a competitive edge. While advisors can recommend technologies and workflows to improve efficiencies, it’s the human connection that’s hard to replace. The advice an accountant or bookkeeper provides can go a long way with a small business owner. Being a true partner and engaging with clients from the start can form the core of a strong relationship between business owner and advisor.
Canadian financial literacy survey
View the full results from the Xero Canadian financial literacy survey below.
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