Jeff Cates, Managing Director of Intuit Canada discusses the findings of Intui’s 2012 study uncovering a major barrier to startup growth in Canada – Financial Literacy.
How do you get a creative, right-brained, abstract thinker to get excited about business accounting and balance sheets?
It may sound like an unlikely marriage, but it’s a scenario — and often a pain point — many entrepreneurs face. It was also the theme of a recent event hosted by Startup Canada, Intuit Canada, and other Canadian small business sector leaders. Bridging the Financial Literacy Gap, the first in a new Startup Canada series of events tackling hot-button startup issues, was inspired by a recent study conducted by Intuit Canada that revealed 83 per cent of Canadian small business owners have a basic (or lower) grasp of financial fundamentals.
“When we asked small businesses, ‘If you were to go back and do it again, what would you do differently?’ the number one thing they said was that they wished they had spent more time understanding financial management skills, like establishing a business plan, getting a mentor, and getting professional business advice,” said Jeff Cates, Managing Director of Intuit Canada, and a keynote speaker at the event.
At the beginning of their startup careers, when ideas are fresh and inspiration is running high, most entrepreneurs are not interested in diving deep into the financial details of running a business, said Gary Rabbior, President of the Canadian Foundation for Economic Education (CFEE), as part of a panel discussion at the event.
“Money in most cases is not even the motivator,” he said. “They’d put it all at risk to do it again because you’ve turned on the desire to accomplish things, to set a goal to do it, to bring the resources together to use your creativity and innovation to do it. The money is a scorecard, it’s not where their head is at.”
So when do most entrepreneurs learn their financial ropes? Often when they can’t avoid it any longer.
“When you have to go for capital, that’s a pain point and then they’re forced to learn,” said Cates.
The challenge is further compounded by a stigma that financial smarts are too hard or too intimidating to grasp, a notion that is often initiated or exacerbated at the secondary school level.
“The way we are teaching math and the concepts and the abstracts that go into the thinking about it turns kids off,” said Rabbior. “We’re doing a bad job of it and as such we’re living with the legacy where they don’t think they can do it, even though they should do it, and we have a gap in the middle.”
According to Statistics Canada, 85 per cent of early-stage startups make it through their first year of business, but only 51 per cent survive through year five. Starting a business on sound financial footing is essential to reversing this trend, said Cates.
“We believe that the single most important thing we can do to help more small businesses succeed is to increase awareness about financial literacy, and make more tools and resources available,” said Cates.
“It has to be something that is part of our education system,” said panelist Julia Deans, CEO of Canadian Youth Business Foundation (CYBF). “It has to be something that parents talk to their kids about and model for their kids, and it has to be something that we tell more stories about.”
She added that a mere 10 per cent of the clients who walk through CYBF’s door come with a business plan or base financial skills.
“It tells you people are coming with passion and with ideas, not necessarily with a holistic view of what it takes to start a business,” she said.
From a venture capitalist’s perspective, financial literacy is as important for crafting a winning pitch as it is for building a solid business plan.
“I think there’s a requirement for every entrepreneur, if they’re going to put their stick on the ice, to realize it is a core requirement for their success,” said panelist Lance Laking, Investment Director at the MaRS Investment Accelerator Fund. “The vast majority of companies require external capital and it’s the ability for the entrepreneur to articulate the business opportunity and to speak with a degree of competence and confidence around the financial projections and financial opportunity of the business that is equally important.”
Lack of financial literacy skills isn’t just an issue for entrepreneurs. A 2011 study by Canada’s Task Force on Financial Literacy reported that many Canadian consumers in general are ill-equipped to deal with financial matters. For example, only 51 per cent of Canadians at the time had a budget, and only 40 per cent had a good idea of how much to save for retirement. Household debt had risen from 90 per cent of disposable income in 1990 to 148 per cent in 2010 – the highest level in history.
In its report to the Minister of Finance, the Task Force recommended numerous action plans, such as appointing a national director of financial literacy, integrating financial literacy into K-12 curricula, workplace training and government programs, as well as creating services and tools to be offered through not-for-profit channels.
Within the small business sector, Intuit Canada is acting on the issue by collaborating with CYBF this year to launch a new program that will give 15 small businesses access to financial planning tools and accountant mentors to help get them started. Feedback from the participants will then be used to develop new programs and new ways to educate startups on financial literacy.
“I’m really excited about that because what we’ve learned is that learning from small businesses is really the answer — it won’t come from the top down, it comes from entrepreneurs themselves,” said Cates.
At CYBF, Deans said another key ingredient for helping entrepreneurs get more comfortable with numbers is to share stories of how financial smarts can translate into startup wins.
“A huge incentive is the improved chance of success and that means a lot to entrepreneurs,” said Deans. “The more we all tell those stories, those stories will get people to follow that route.”
The Bridging the Financial Literacy Gap event wrapped up with a pitch session and awards ceremony showcasing four Canadian startups that have developed solutions to the financial literacy challenge.
StratPad (Victoria, BC), Accel.io (Ottawa, ON), Fundica (Montreal, QC), and GoVenture (Sydney, NS) were selected from nearly 40 finalists from across the country to receive a Financial Literacy Startup Award, sponsored by Intuit Canada. StratPad, an iPad app that helps companies understand, plan, track and share their financial outlook, took home double honours by also scoring a People’s Choice Award.
Stratpad creator Alex Glassey’s advice to other entrepreneurs is to take the time early in their startup careers to educate themselves and build a comprehensive business plan.
“The business plan is where your creativity and your financial literacy meet in order to bring your ideas forward,” Glassey said.
If you missed the Bridging the Financial Literacy Gap event, an archive video of the keynote, panel, and pitches can be found here. The event was made possible through the support of the Telfer School of Management and Startup Canada’s national sponsors Microsoft, Gowlings, and Ernst & Young. If you are interested in learning more about Intuit Canada’s survey of small business owners and the results of its study, click here.
The post Spotlight on Jeff Cates, Managing Director of Intuit Canada appeared first on Small Business Center | QuickBooks CA.