National Financial Fitness Startup Study discovers opportunities plus

AUSTRALIAN entrepreneurs may have a lot going for them – ideas, passion, skills and the guts to start a business – but financial and operational savvy is rare.

New research, commissioned by cloud accounting specialists Intuit, has revealed Australian start-ups need a helping hand when it comes to financial know-how in order to boost their chances of long-term success. 

The Intuit Financial Fitness Startup Study, launched recently by Intuit Australia with the support of NSW Minister for Regional Development, Skills and Small Business, John Barilaro, was conducted by Galaxy Research and surveyed 400 start-up owners nationwide to find out how much they knew about managing their business finances.

The research methodology 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.

The research results revealed that only a few scored highly, while the majority (58 percent) did not pass. Highights were:

• Just four in 10 (42 percent) managed to score five out of 10 or more.
• One in 10 (8 percent) could not answer any questions correctly.
• 12 percent scored only one out of 10.
• Only three percent of start-up owners answered all questions correctly.
• Men outscored women, with 48 percent passing compared with 38 percent of women.
• Gen Y start-ups proved least financially savvy – just a quarter (26 percent) passed, compared with four in 10 (44 percent) Gen Xs and six in 10 (63 percent) Baby Boomers.
• The majority could not correctly identify the role of a balance sheet (65 percent) or define accruals (70 percent).
• Only around half (56 percent) identified that depreciation does not affect the cash position of the business and two thirds (64 percent) knew that collecting receivables on time improves the short-term cashflow of a business.

Intuit Australia managing director Nicolette Maury said there were more than 500,000 Australians involved in start-up 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 start-ups close their doors in the first year and only half make it through their third,” Ms Maury said.

“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.

BUSINESS FINANCES CHALLENGE

As part of the Intuit study, start-ups were asked to rate their own financial management skills and outline how they manage their accounts.

The research revealed just one in 10 (12 percent) business owners claim to have a thorough understanding of their finances and only four in 10 (40 percent) believe their business is well managed. Most (60 percent) recognise they could do a better job with their finances:

• A quarter (25 percent) admit they should pay more attention.
• 16 percent claim they don’t pay much attention to managing their finances as it tends to take care of itself.
• Two in 10 (19 percent) look after their business finances even though there is a lot they don’t understand.

Half of all start-ups (53 percent) are keeping their own financial records up to date and preparing their BAS, even though four in 10 (40 percent) only have a basic understanding of finances. Two in 10 (19 percent) use an external accountant and one in 10 (12 percent) employ a bookkeeper or finance manager. Of significance, among those who failed Intuit’s financial skills test, half (51 percent) prepare their own BAS.

Ms Maury said the results confirmed many are yet to discover and use the wide range of affordable, easy-to-use online financial management solutions, including cloud-based software.

“Most start-ups still use time consuming and error prone methods to manage their finances including spreadsheets (42 percent) and manual methods such as ledgers, and even pen and paper (22 percent),” she said. “Just 13 percent use desktop software and 9 percent use cloud-based accounting software.”

She said products such as Intuit QuickBooks Online enable start-ups to run their businesses from wherever they are “and get the insights they need in real time to make informative busines decisions”.

SUPPORTING START-UPS

According to the research, there is also a range of options that start-up owners believe could improve their business finances but only some recognise the need for targeted financial skills support:

• 19 per cent of start-ups said a mentor would be most helpful.
• 16 percent opted for a financial management course.
• 12 percent noted an accountant or bookkeeper would be their top option.
• 12 percent voted for online tutorials.

Ms 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 Start-up Weekend Australia events.

“Intuit is the national sponsor of Start-up Weekend Australia and we’re committed to being part of the start-up and entrepreneurial ecosystem in Australia, working with range of stakeholders including government,” Ms Maury said.

Sam Birmingham, the national director of Start-up 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.”

www.intuit.com.au

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