According to the study commissioned by cloud accounting software provider Intuit, more than 500,000 Australians are involved in startup activity at any point in time, but many of them are not as knowledgable as they should be when it comes to managing their business finances.
The study of 400 startup owners, undertaken by Galaxy Research, quizzed the entrepreneurs on key accounting concepts like the role of the balance sheet, accruals and depreciation, and how to improve short-term cashflow – but only a few scored highly, while the majority (58%) didn’t pass the test:
• Just four in 10 (42%) managed to score 5 out of 10 or more
• One in 10 (8%) could not answer any questions correctly
• 12% scored only one out of 10
• Only 3% of startup owners answered all questions correctly
• Men outscored women, with 48% passing compared to 38% of women
• Gen Y startups proved least financially savvy – just a quarter (26%) passed, compared to 4 in 10 (44% ) Gen Xs and 6 in 10 (63%) Baby Boomers
• The majority could not correctly identify the role of a balance sheet (65%) or define accruals (70%)
• Only around half (56%) identified that depreciation does not affect the cash position of the business and two thirds (64% ) knew that collecting receivables on time improves the short-term cashflow of a business
According to Intuit Australia Managing Director Nicolette Maury, 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.”
As part of the Intuit study, startups were asked to rate their own financial management skills and outline how they manage their accounts.
It reveals that just one in 10 (12%) of business owners claim to have a thorough understanding of their finances and only four in 10 (40%) believe their business is well managed – and most (60%) recognise they could do a better job with their finances.
The study also found that a quarter (25%) of business owners admitted they should pay more attention to their finances, while 16% claim they don’t pay much attention to managing their finances as it tends to take care of itself, and 2 in 10 (19%) look after their business finances even though there is a lot they don’t understand.
Half of startups (53%) are keeping their own financial records up to date and preparing their BAS, even though 4 in 10 (40% ) only have a basic understanding of finances. Two in 10 (19%) use an external accountant and one in 10 (12%) employ a bookkeeper or finance manager.
Maury says it is of significance that among those who failed Intuit’s financial skills test, half (51%) prepare their own BAS, confirming that “many are yet to discover and use the wide range of affordable, easy-to-use online financial management solutions, including cloud-based software”.
“Most startups still use time consuming and error prone methods to manage their finances including spreadsheets (42%) and manual methods such as ledgers, and even pen and paper (22%). Just 13% use desktop software and 9% 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.”
Maury says that that Intuit - the national sponsor of Startup Weekend Australia - has long-term plans for boosting financial fitness including developing a Financial Fitness Bootcamp program that would provide resources and expertise for entrepreneurs and would run at selected Startup Weekend Australia events.