Xero Survey Finds Half of U.S. Small Businesses Struggle with Fiscal Challenges Due to Lack of Financial Literacy

A recent survey by global cloud-based small business platform Xero reveals that a significant number of U.S. small business owners face financial difficulties stemming from a lack of financial literacy.

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

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

Financial Challenges After Launch

Although many business owners did not prioritize financial matters when first starting their ventures, financial issues became evident once their businesses were up and running. The survey identified specific areas where small business owners struggle the most, including:

• Optimizing tax strategies (18%)
• Implementing and sticking to budgets (16%)
• Interpreting financial metrics (16%)
• Managing cash flow (16%)

In addition, only 38% of business owners surveyed have an emergency reserve fund, and 13% have no plan in place for unexpected expenses. This lack of preparedness further exacerbates the financial challenges small businesses face.

Starting 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 began their business ventures as side gigs, compared to 48% of Baby Boomers. The top reasons for transitioning to full-time business ownership include:

• The side gig becoming more financially lucrative than a full-time job (35%)
• An entrepreneurial drive or dissatisfaction with a previous career path (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 significant challenges when making the leap from side gig to full-time business ownership.

Independent Financial Management and Missed Opportunities

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