New research reveals that South African small businesses are making mistakes costing them an average of R91,311 per year due to a lack of financial knowledge. This rises to R136,205 for businesses with 10-49 employees, demonstrating that more support is needed to close the financial literacy gap.
The findings are based on a survey of 400 entrepreneurs conducted by global small business platform Xero. The research discovered that the four most expensive mistakes businesses made over the last 12 months were:
- Being irresponsible with cash flow (41%)
- Not investing in financial tech fast enough (36%)
- Not knowing about or not using appropriate government support schemes (32%)
- Being too slow to adapt their business (29%)
Four-fifths (80%) of small business owners are calling for greater advice and support to help avoid mistakes in future. This is understandable given that over a third (38.4%) currently rely on themselves for financial advice, with 37.91% turning to friends and family for help.
Colin Timmis, country manager for Xero South Africa, said: “Financial literacy is the backbone of any small business. Having a clear view of cash flow and what money is coming in and out is the only way to make informed decisions. Small businesses simply can’t afford to make mistakes.
“We need to see a greater focus on financial skills development and more collaboration between government and the technology sector to educate owners on the tools available to them.”
Tax is one of the biggest knowledge gaps
More than a quarter (27%) of small business respondents said submitting tax returns is one of the top areas they struggle with. Meanwhile, 41% said they wish their interactions with the South African Revenue Service could be more efficient. Almost a quarter (23%) of businesses have received a penalty fine because they did not understand the tax rules.
Timmis continued: “We know that boosting the taxpayer base is one of the most important drivers of our economy. Yet, many small businesses still don’t have the support they need to file them confidently. Digital tools, like Xero’s direct VAT eFiling with SARS, can make the process easier for businesses, so they don’t face unnecessary penalties and fees.”
Covid-19 creates a positive shift in attitude
The pandemic has put into perspective the importance of financial literacy. Nine out of ten respondents (93%) said it had changed their approach to finances, while more than half (57%) said they wanted to learn more about managing money as a result. Half (49%) now recognise how important it is to have an accountant by their side to play a business advisory role.
Technology is helping to close the gap
Encouragingly, the research reveals that the adoption of new technology is helping business owners to better manage their finances. Nearly half (44%) had adopted financial technology before the pandemic, while a quarter (25%) reported adopting it this year to give them better control over money in response to Covid.
Closing the financial skills gap amongst small businesses is one of Xero’s recommendations to the government in its Time to Rebuild manifesto report.
View the full results from the financial literacy survey here.