Entrepreneurship is often viewed as a path to financial freedom and success, but the reality is that running a business requires a deep understanding of financial management. Canadian entrepreneurs, while generally knowledgeable in their respective fields, may not always possess the necessary financial literacy to explore the complexities of bookkeeping, budgeting, and financial decision-making.
Improving Financial Literacy Levels Over Time
Recent research conducted by our organization reveals an encouraging trend in the financial literacy of Canadian entrepreneurs. In a 2024 survey, 83% of respondents were able to correctly answer at least 7 out of 10 financial literacy test questions, a significant improvement from the 78% who achieved the same level of performance in 2017. This progress is a testament to the growing emphasis on financial education and the efforts made to equip business owners with the necessary skills to manage their finances effectively.
The Paradox of Perceived Knowledge
However, the study also uncovered a paradox – while the measured financial knowledge of entrepreneurs has increased, their confidence in their own abilities has declined. In 2017, 68% of respondents felt they were knowledgeable or very knowledgeable about financial matters, but this figure dropped to 63% in 2023. This suggests that as business owners become more aware of the complexities involved in financial management, they may also recognize the limitations in their own knowledge, leading to a more humble and realistic assessment of their financial literacy.
Identifying Knowledge Gaps
The survey also revealed specific areas where Canadian entrepreneurs still struggle with financial concepts. One question that posed a particular challenge was related to bond pricing. Fewer than half of the respondents correctly identified that bond prices typically fall when interest rates rise. While this represents a 9-percentage point improvement from the previous survey, it highlights the need for more targeted education on investment fundamentals.
Shifting Attitudes Towards Financial Management
Encouragingly, the research also found a statistically significant increase in the percentage of business owners who say they enjoy dealing with financial matters. In 2023, 77% of entrepreneurs surveyed expressed this sentiment, up from 68% in 2017. This shift in attitude suggests that Canadian entrepreneurs are becoming more comfortable and engaged with financial management, which can positively impact their overall business performance.
Confidence in Financial Skills
Mirroring the trend of increased enjoyment, there was also a 5-percentage point rise in the number of entrepreneurs who felt confident or very confident about their financial management skills, from 70% to 75%. This growing sense of confidence can be a crucial driver for business owners to take a more proactive approach to their financial responsibilities.
Time Allocation and Prioritization
One notable finding from the study was a sharp decrease in the time Canadian entrepreneurs allocate to financial management. In 2017, business owners reported spending 30% of their time on financial matters, but this figure has since dropped to 20%. This shift may be attributed to the various challenges faced by entrepreneurs in recent years, such as the COVID-19 pandemic, labor shortages, and supply chain disruptions, which have likely required more attention and resources in other areas of their operations.
Risk-Taking Attitudes
The research also explored the willingness of Canadian entrepreneurs to take risks regarding their personal financial investments. While the overall risk tolerance has increased, a concerning trend emerged – fewer business owners felt “very willing” to take risks. This suggests that some entrepreneurs may be adopting a more cautious approach, potentially limiting their ability to leverage financial opportunities for business growth.
Reliance on Professional Advice
The study found that Canadian entrepreneurs maintain a stable relationship with financial and accounting professionals. Approximately two-thirds of respondents consult these experts before making important financial decisions or tend to trust and accept their recommendations. Interestingly, the use of professional services has seen the biggest increase in the area of debt management, with 38% of business owners seeking advice compared to 28% in 2017.
Perceptions of Business Credit Records
The news is generally positive when it comes to Canadian entrepreneurs’ perceptions of their business credit records. Over half (55%) of the respondents rated their firm’s credit record as “very good,” a 12-percentage point increase from the previous survey. However, the trend is not as positive when it comes to actively checking their credit history, with 47% of business owners never having requested a credit report for their company, a slight decrease from 52% in 2017.
Addressing Persistent Gaps
The research highlighted some persistent gaps in financial literacy that still need to be addressed, particularly among specific demographic groups.
Gender Differences
The study found that women entrepreneurs scored lower on the financial literacy quiz compared to their male counterparts, with an average score of 7.5 for women versus 7.9 for men. Additionally, women were less likely to consider themselves knowledgeable about financial matters, feel confident in their financial management skills, and be willing to take risks regarding their personal financial investments.
Diversity Considerations
The report also uncovered differences in financial attitudes and behaviors among diverse-owned small and medium-sized enterprises (SMEs). Diverse-owned SMEs, including those owned by immigrants, were less willing to take risks and less confident in their financial management skills compared to non-diverse-owned SMEs. This may be influenced by cultural perceptions of debt and unfamiliarity with the financial landscape in the Canadian context.
Business Size Disparities
The study found that smaller businesses tend to exhibit financial management behaviors more akin to the general public, with lower risk tolerance and financial practices that are closer to personal finance rather than business finance. As companies grow, their financial management approaches become more sophisticated and aligned with the needs of a thriving enterprise.
Addressing the Confidence Gap
A key takeaway from the research is the importance of building confidence among Canadian entrepreneurs, particularly among women and diverse-owned businesses. Lower self-confidence can lead to doubts about one’s ability to make sound financial decisions, which can in turn hinder business growth and risk-taking. Providing more role models, mentorship opportunities, and targeted financial education programs can help empower entrepreneurs to overcome these confidence barriers and embrace a more proactive approach to financial management.