It’s notable that the survey found 53 per cent of Canadian small businesses were launched as side gigs. Originating from that point means that growth, transitions, and the development of a plan likely happened more piecemeal and sporadically, with a chance that key pieces of financial information got missed along the way. Many of these businesses emerged out of startups or the gig economy, and a run by entrepreneurs who never went to business school or got a formal financial education. That has translated into a number of financial literacy gaps.
Looking at the results Emmerman says he was quite surprised by some of the major cashflow concerns the survey highlighted. The lack of emergency funds, the high reliance on credit cards, and the lack of capacity to manage debt all proved somewhat surprising.
Looking at the state of financial literacy, Emmerman highlights the need for education. He advocates for better organization and storage of entrepreneurs’ financial data, allowing them to better see and grasp the state of their finances. He argues that advisors can play a key role too in creating an understanding of cash flow, liabilities, and debts as well as when an entrepreneur might need to access capital and the means out there for them to do so.
Key for advisors to understand is the fact that 73 per cent of the entrepreneurs surveyed used their own cash to start their business. Helping these entrepreneurs grasp other forms of financing as their businesses grow and expenses mount can be crucial in determining their long-term success.
Emmerman believes that when advisors come to work with entrepreneurs they need to begin from a point of curiosity. Advisors need to grasp where these clients came from, who they are, what their backgrounds are, and how their business came to be in the place it’s at. Sometimes those clients will have backgrounds in finance or a strong knowledge base. Often they won’t, so leading with simple questions about how they feel about finances, their anxiety around financial statements, and the things they wish they knew can open the door to better overall understanding.