According to a recent study conducted by financial applications company Intuit, Australian entrepreneurs rank highly when it comes to qualities like having ideas, being passionate, having great skill sets and fearlessness to start a business, but they severely lack core financial knowledge that would assist them in becoming a long-term success.
The Intuit Financial Fitness Startup Study that was launched last week, was conducted by Galaxy research and surveyed 400 startups across Australia to find out how much they knew about managing their business finances. The survey was made up of a 10-question quiz all around key accounting concepts like the role of a balance sheet, accruals and depreciation as well as other core business techniques like how to improve cashflow.
“The purpose of the survey was to understand how well they understood their particular business finances, what tools they were using to help manage them and where they thought they needed some help,” says Nicolette Maury, Managing Director of Intuit Australia.
“The results really revealed quite a critical knowledge gap across startups and the most impactful statistic there was the majority of these startup owners didn’t pass the basic financial knowledge test and 1 in 10 of them couldn’t answer any of the questions correctly … There’s a serious knowledge gap with these startups that obviously have started a business based on a passion and seen a business opportunity but there’s a real risk with them not being able to build a sustainable business simply because they don’t have some of this basic financial fitness”.
There were some pretty alarming insights amongst the data. According to the survey, men were deemed more financially fit than women; and from a generational perspective, Gen Y proved to be the least financially savvy with only 26% of those surveyed actually passing the quiz.
Perhaps more alarming is that 65% of those canvassed could not explain the role of a balance sheet and 70% were unable to define accruals. In addition, only 64% of startups knew that collecting receivables on time improves the short-term cashflow of a company.
It is worth mentioning that, although Intuit estimates there are 500,000 people in Australia involved in startup activities at any one time and that 25% of startups close their doors in the first year, the survey was not specifically targeting “startups”. It was targeting new businesses. The numbers around startups shutting down within the first year are actually closer to 80% and there is a much smaller pool of locals playing in the area of highly scalable business ventures than 500,000.
Having said that, Intuit does understand the “startup” space, having been one and acquired high growth technology businesses itself. The company is also a supporter of the Startup Weekend movement, and is in a position to help startups put in place actionable insights to have better financial foundations for their companies.
“There are three areas that we can help. Firstly is obviously through our cloud accounting software. It is a tool that these businesses can use, not just to help them manage their finances with limited knowledge in a really intuitive way but also to help educate them on what’s important for them to build a successful business and the research showed that only 9% of these startups currently use a cloud based accounting software. So there’s a real opportunity there with Quickbook online as tools to better help them manage their finances,” said Maury.
“Secondly we worked very closely with accounting professions and there’s a very strong role for the accounting profession to play in the success of Aussie startups. This is particularly around being that trusted advisor and ensure that they’re building a strong financial foundation but also to help them plan ahead and learn to build a more successful business. And finally our longer term plan is to run some financial fitness bootcamps where the national sponsor is Startup Weekend Australia and so we’re working with them on ways to educate the startup community on some these basic financial knowledge areas to help them get some of this right”.
Numbers, and more importantly, knowing what your numbers are, plays a critical role in any company, startup or otherwise. The biggest challenge for startups is finding the right people to bounce ideas off – who will help keep them in check from a financial perspective through mentoring and fiscal guidance. This is something that Intuit says will be a focus for the company as it enhances the role it plays in the Startup Weekend events throughout Australia.