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Xero has launched a free financial education programme for Australian small business owners, following research showing that 35% often do not know whether they made a profit in the previous month.
The accounting software group has also convened a taskforce in Canberra to examine barriers to financial confidence among small businesses. Its initial members include representatives from small business, finance, education, advocacy and mental health.
The findings highlight a gap between how owners view their financial skills and how advisers assess them. While 85% of small business owners said they were confident handling financial issues, 90% of accountants and bookkeepers said owners lacked the skills to manage the financial side of their business effectively.
The programme, Xero For Good: Financial fitness, will offer short videos, practical guides and free mentoring from volunteer accountants and bookkeepers. The material covers cash flow, financial statements, budgeting and business finances, and is designed to be viewed on demand on a mobile phone.
Xero commissioned the research with independent agency One Picture. It surveyed 750 small business decision-makers and 500 accountants and bookkeepers working with small business and sole trader clients.
Confidence gap
The research suggests many owners are struggling with basic financial oversight. Nearly a third, or 32%, said they were not regularly paying themselves a wage, while only 37% answered 10 basic business finance questions correctly.
It also found that 41% were too afraid to ask questions about financial management because they felt they should already know the answers. Another 22% said they felt overwhelmed when dealing with business finances.
Public artificial intelligence tools have also entered the picture. More than one in three owners, or 35%, said they had turned to public AI tools for business advice, while 95% of accountants and bookkeepers said small businesses receive financial misinformation, mainly from social media.
Three in four owners agreed that Australia's education system does not equip future entrepreneurs with the financial skills needed to run a business. Among accountants and bookkeepers, 84% agreed.
Angad Soin, Managing Director Australia and New Zealand and Global Chief Strategy Officer, Xero, linked the research to a broader need for earlier financial education and policy attention.
"Starting a small business is a leap of faith, but too many owners haven't had the opportunity to set themselves up for success. More than one in three often don't even know if they made a profit last month. That's why we're calling for financial education earlier, and bringing government and industry together to act on it," said Angad Soin, Managing Director Australia and New Zealand and Global Chief Strategy Officer, Xero.
"Financial literacy shouldn't be a privilege, it should be a right. Xero For Good: Financial fitness gives owners the chance to understand their numbers on their own terms, in five minutes on their phone, not buried in long financial theory at midnight or joining a webinar while they are trying to run their business," Soin said.
Uneven burden
The strain appears heavier for owners facing social or demographic disadvantage. Among these respondents, 75% said financial uncertainty kept them up at night, compared with 48% of those not facing disadvantage.
They were also far more likely to say they were too afraid to ask questions, at 69% versus 26%. In dealings with the Australian Taxation Office, 35% said they would ignore messages from the ATO if they did not understand them, compared with 9% of those not facing disadvantage.
Dr Leanne Faulkner, a small business mental health expert, said the results showed a close link between financial understanding and wellbeing.
"The more financially literate a small business owner is, the better equipped they are to have control and make choices about work on their own terms. Those without these tools are more likely to feel it's feast or famine. Financial literacy means exercising more choice, and that's where a program like this can make a real difference," said Dr Leanne Faulkner, small business mental health expert.
Taskforce focus
The taskforce will examine practical ideas to strengthen national support for small business financial literacy. Xero intends to produce recommendations for government.
Initial members include Verity Hare, Founder, Tradie Wives; Carly Findlay, OAM, disability activist, writer and artist; Greg Jennings, Chief Engagement Officer, Beyond Blue; Jeanette Cheah, Chief Executive Officer and Co-Founder, HEX; Adele Tahan, Pharmacist, Adore Compounding Pharmacy; Amy Low, Chief Executive Officer, The Social Outfit; Jarvis Archer, Restructuring Expert, Business Reset; Ahmed Latif, Founder, Distinction Homes; and Huy Truong, Co-Founder and Executive Chairman, Thrive Refugee Enterprise.
The survey was conducted between late March and mid-April and focused on Australian small business owners, as well as accounting and bookkeeping professionals. Among its starkest findings was that only 37% of owners answered all 10 basic finance questions correctly.