Most small business owners can’t pass a basic financial test

Running a business requires a wide range of talents and skills, from production savvy to employee empathy and marketing mojo. Throw in P&Ls, cash flow and taxes, and that’s more breadth of knowledge than is expected of line managers.

A recent survey found that 83% of business owners would have trouble passing a test on basic finance, which may be why “financial literacy” for entrepreneurs has suddenly become a big thing.

Entrepreneurs haven’t suddenly become stupid. Running a business requires a wide range of talents and skills, from production savvy to employee empathy and marketing mojo. Throw in P&Ls, cash flow and taxes, and that’s more breadth of knowledge than is expected of line managers. (A longtime friend of mine was a huge success in big business before dropping out to run his own startup; when that didn’t work out, he faded back into corporate life, which he found easy by comparison.)

But naming a problem is the first step to solving it, so it’s good to see global software giant Intuit adopting financial literacy as a cause. Yes, it fits into Intuit’s sweet spot as the developer of Quicken and QuickBooks. But you don’t see LinkedIn offering to teach entrepreneurs how to market, or Monster trying to eradicate dumb hiring practices.

At an event last week in Ottawa, the fledgling Startup Canada association tackled the “Financial Literacy Gap” with a panel of talking heads and a “pitch contest” between four entrepreneurs. Here are a few highlights:

— “About 10% of the people who come to us have an understanding of financial fundamentals,” said Julia Deans, chief executive of the Canadian Youth Business Foundation, which provides loans and mentoring services to entrepreneurs under age 40. With CYBF’s help, she said, “By the time they launch, they have a business plan that’s pretty robust.”

— “Most Canadians suffer from a lack of financial literacy,” noted Gary Rabbior, president of the Canadian Foundation for Economic Education. His association promotes financial literacy for consumers and entrepreneurs, working with education officials to inject practical finance into school curricula. But the key, Rabbior said, is to change the way schools teach: “We have loaded up our school curriculums so much with outcomes — there is so much teaching and so little learning going on — that entrepreneurs get turned off and leave school.”

— “I think any entrepreneur who is going to put their stick on the ice must realize that financial literacy is a core requirement for their success,” said Lance Laking, a former technology entrepreneur who advises IT and entertainment companies at MaRS Discovery District. But, as he noted, financial literacy goes beyond balance sheets: “The ability of an entrepreneur looking for capital to speak with competence and confidence around the financial projections and financial opportunity of the business is critically important.”

— “Part of the answer is to have a strong support network,” said Jeff Cates, managing director of Intuit Canada. “I think a lot of that will come from associations and from mentorship programs that help small businesses learn from small businesses.”

— Deans pointed to CYBF’s experience connecting entrepreneurs with mentors and fiscal discipline. “It drives the entrepreneurs bananas,” she said. “But two or three years later, they say things like, ‘that was the quadruple bypass surgery I didn’t know I needed.’ ”

— Laking noted that advanced financial savvy is essential for technology entrepreneurs. “A lot of the businesses that we see in the Internet/digital media/mobile space relate to a software-as-a-service platform, which is touted as the ultimate path to riches — a perpetual revenue stream. But we see time and time again that entrepreneurs don’t understand that SAS-based businesses start very, very small in terms of revenue, and it takes a very long tail to build to the point where the business is cash-flow-positive.” Following the panel, four entrepreneurs from across the country pitched their own creative financial solutions, demonstrating how smart startups can make a difference in the most intractable of problems.

Scott Annan of Ottawa-based showed off his growing line of snappy how-to guides on finance, marketing, legal and other business issues written by hands-on experts (examples: “Business Model Generation” and “Build a Killer Term Sheet”). Priced from $6 to $99, the guides use charts, video and interactive media to overcome limited attention spans.

Mike Lee of Montreal-based Fundica introduced his no-fee portal for businesses looking for financing. Fundica’s matching service includes private-sector finders as well as grants, tax credits, loans and equity funding offered by federal, provincial and municipal governments.

Mathew Georghio previewed his interactive business simulation, GoVenture World via Skype from Sydney, N.S. The multiplayer online game lets you experience business from the point of view of an entrepreneur, CEO, marketer or lawyer – and compete with other players in real time. If you make all your mistakes in the game, hopefully you’ll avoid them in real life.

Alex Glassey, business consultant from Victoria-based StratPad, showed off his iPad app that combines strategy with business planning. A recent survey found 75% of StratPad clients in 26 countries had successfully accessed financing from family, friends, banks and investors.

These innovations may not solve all of entrepreneurs’ financial challenges. But they certainly cut down on the excuses for not knowing what makes the world spin around.

Rick Spence is a writer, consultant and speaker specializing in entrepreneurship. His column appears weekly in the Financial Post. He can be reached at

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