British small businesses grapple with financial skills crisis, hindering growth and economic stability

A critical financial skills gap is undermining the resilience and growth of small businesses across the UK, according to new research published today by Xero, the global small business platform.  

The study, conducted by Censuswide and Opinium, exposes a widespread lack of financial confidence among entrepreneurs leading to mistakes and missed opportunities, with significant implications for individual businesses and the broader economy.

Despite only a quarter (24%) of small business owners believing they lack necessary financial skills, the research indicates a deeper problem. Nearly two in five (38%) are unaware if their business was profitable last month, and over half (55%) struggle with cash flow management.

This uncertainty often leads to active avoidance: more than one in four (28%) business owners don’t think of themselves as ‘a numbers person’ – a figure that rises to 32% among female respondents and 38% for 18-34 year old entrepreneurs. Alarmingly, more than half (55%) avoid finances, and one in five (22%) are too afraid to ask financial questions, fearing they should already know the answers.

Pub ‘misinformation’

Nearly half of accountants and bookkeepers surveyed (45%) blame ill-informed conversations in places like the pub for the spread of financial misinformation. They fear this means small businesses are making avoidable financial mistakes, with regulations relating to expenses being widely misunderstood.

• Half (50%) of accountants and bookkeepers surveyed have worked with small businesses who incorrectly assume the government will reimburse their expenses

• A third (33%) of accountants and bookkeepers surveyed have met business owners who didn’t realise dividends were taxable

• One in ten (9%) of the smallest businesses (up to 9 employees) incorrectly believe that they don’t need to declare all their income to tax authorities

For small businesses, accountants and bookkeepers are a hugely trusted source.  Nearly all small businesses (98%) who have consulted them found the advice helpful.

The skills gap is creating unknown mistakes, at scale

This cultural resistance is fostering detrimental financial habits, including, in the last two years:

• Two in five (39%) small businesses failing to claim all eligible expenses, and over half (51%) are caught off guard by unexpected costs

• A quarter (26%) not setting aside enough money for tax or submitting a late tax or VAT return (26%)

• More than half of sole traders (59%) operate without a separate business bank account

• Half (51%) wrongly believe HMRC will contact them if a tax return is due

• A quarter (26%) of small businesses failed to set aside enough money to cover their tax bill at the end of the year

Kate Hayward, UK Managing Director at Xero commented: “We are a nation of small business owners, but we are not a nation who trains our children to think and behave like entrepreneurs. Culturally, there’s a stigma around not knowing our numbers, with many I speak to worried that they should know more than they do. There’s no shame in it when nobody is teaching us about it, but businesses deserve more. So today we’re launching our own free programme to help, but we are calling for further support from Government and industry. Plugging this skills gap will provide growth and economic stability, but let’s inspire entrepreneurs to dive in. Numbers are only scary if you ignore them; there’s no need to suffer in silence.”

UK Government action

The findings underscore calls for a concerted effort from policymakers and the private sector to bolster financial confidence within the UK’s small business community and for people who want to start their own small business but are not confident in doing so. Xero is asking for financial education to become an even bigger part of the school curriculum and for it to be better embedded in UK culture.

Xero is already a proud supporter of The Maple Review, an independent, government-backed initiative run by Small Business Britain, committed to addressing the economic barriers to small business ownership. This includes significant barriers to financial confidence and education which starts at a young age.

Xero also partners with Small Business Britain for its successful Small & Mighty training programme which has now helped 4,000 micro businesses to scale. And Xero has just become a patron of the King’s Trust, a multi-year programme that helps disadvantaged young people start their own businesses.

Free tools and mentoring from Xero

To support the immediate need for improved financial literacy, Xero has launched Know Your Numbers as part of its Xero for Good initiative. This free programme offers tools, training, and educational resources designed in collaboration with business owners to be accessible and fit within busy schedules. As part of this programme, Xero is launching the Xero for Good Ambassador Programme, connecting small business owners with volunteer accountants and bookkeepers for up to a year of free mentoring.

To help solve the problem at the source, Xero is forming a taskforce of experts to campaign for more support to boost the nation’s financial literacy and help aspiring business owners feel confident in their numbers. Those experts include:

• Martin Bissett, 14 time author, Young Money Ambassador and founder of Bissett Group Holdings

• Sarah Poretta, CEO of Young Enterprise, a financial and enterprise education charity

• Zoe Whitman, co-founder of ‘The 6 Figure Bookkeeper’ podcast and education movement

Through these combined efforts – from advocating for financial education in schools to offering free tools and mentoring via Know Your Numbers – Xero is committed to empowering UK small businesses.

Learn more about the research in Xero’s report: Know Your Numbers: Empowering financial confidence for small business growth.