Xero Survey Finds Share of US Small Businesses Struggling with Financial Challenges Due to Lack of Financial Knowledge

A recent survey by small business cloud-based platform Xero reveals that a large number of US small business owners are facing financial difficulties due to a lack of financial knowledge.

While 55% of respondents rated their financial literacy as “high,” half (50%) of small business owners admit to experiencing financial challenges due to limited financial knowledge, and 15% of those affected have not recovered from these difficulties.

Ben Richmond, Managing Director North America at Xero, emphasized the importance of financial literacy for small businesses: “Financial literacy is critical to the health and growth of small businesses, as it empowers owners to make informed decisions and navigate complex external and internal environments. .”

Financial Challenges After Launch

Although many business owners did not prioritize financial matters when starting their businesses, financial problems became apparent once their businesses were up and running. The study identified some areas where small businesses are struggling, including:

• Developing tax strategies (18%)
• Using and sticking to a budget (16%)
• Interpreting financial metrics (16%)
• Managing cash flow (16%)

In addition, only 38% of business owners surveyed have an emergency fund, and 13% do not have a contingency plan in place. This lack of preparedness perpetuates the financial challenges small businesses face.

From Side Gigs

A growing number of small businesses today start as side gigs, especially among younger generations. According to the survey, 67% of Gen Z respondents started their businesses as side gigs, compared to 48% of Baby Boomers. Top reasons to switch to full-time business ownership include:

• A side gig is more financially rewarding than a full-time job (35%)
• Entrepreneurial drive or dissatisfaction with previous job (30%)
• Increased demand for products or services (22%)

Despite these motivations, many entrepreneurs struggle with self-doubt and fear of failure, with 49% citing these emotional hurdles as key challenges when making the leap from side gig to full-time business owner.

Independent Financial Management and Missed Opportunities

A remarkable 39% of small business owners prefer to manage their finances independently, potentially missing out on valuable insights that financial advisors can provide. Advisors can provide expertise in important financial aspects such as tax optimization, budgeting, and cash flow management. Despite these benefits, only 16% of respondents currently use an accountant or consultant, limiting their potential for financial growth and sustainability.