Businesses struggle with finance questions

Small business owners have shown a “worryingly low level of understanding of some of the most basic businesses practices” according to the first national IQ test of entrepreneurs.

Part of the National Small Business Week, the Business Brains test was taken by over 1,000 owner-mangers who generally displayed a good understanding of marketing and management, but a majority lacked knowledge of finance, with 70% not knowing the meaning of ‘depreciation’ (the reduction in value of a fixed asset due to use).

Almost half the respondents could not make a rudimentary balance sheet calculation to show borrowing requirements, suggesting that many small business owners may not have a clear idea of what their accounts are telling them.

From a legal point of view, two-thirds of owner-managers did not know when a partnership agreement came into force or when copyright protection comes into effect.

Only 4 out of 10 knew that 130,000 unfair dismissal cases go before industrial relations tribunals every year. Overall, only 5% got all the business law questions correct.

However, it isn’t all bad news, as over three-quarters of respondents appeared to understand the fastest and most certain ways to profitable growth and the average overall score for the test was a “highly creditable” 66%.

Businesses in the service sector received the highest average scores, while retail and e-commerce businesses languished in last place. Age won out over youth as owner-managers between 36 and 50 fared much better than those 25 and under.

Experience, however, appeared to count for little as businesses that had been running for over 5 years were as ignorant of law issues as recent start-ups.

Author of the test Colin Barrow, Head of Enterprise at the Cranfield School of Management, commented, “Overall, those taking the test did well.

When compared against the results from Cranfield’s Business Growth Programme, a sample of business people who are already demonstrably successful at running and growing their business, the results were not so strong.

Research has shown that these companies grow much faster and are more profitable than small firms in general, clearly demonstrating the importance of businesses identifying their areas of weakness and working on them.”

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