British small and medium sized businesses (SMEs) are being urged to get ready for a multi-billion-Euro fund, which is part of the European Union’s Horizon 2020 package of support services for research and innovation, to be announced later this year. But are British SMEs up to managing their finances effectively? A recent survey would suggest not.
The nationwide survey, commissioned by business and finance software provider, Exact, was carried out in order to get a better understanding of the working relationships and processes in place between SMEs in the manufacturing, professional services and wholesale & distribution sectors, and the people they regard as their most trusted business advisers, their accountants.
Among the most startling findings was that almost a quarter (23 percent) of SME manufacturers who took part in the survey admit to having forgotten to invoice for goods or services at least once. Among these, around 41 percent of manufacturers confess to not invoicing for a job worth between £1,000 and £5,000, while 12 percent admit to having forgotten to invoice for a job worth more than £10,000.
The implication for the UK's 4.8 million SMEs – which account for 99.9 percent of all private sector businesses in the UK – is that they are collectively out of pocket by as much as £3.7 billion.
“We don’t want to blow this issue out of proportion,” said Hartmut Wagner, managing director of Cloud Solution Exact, “but these findings do highlight that many SMEs working in the manufacturing sector who are eager to grow are not doing themselves any favours by losing out unnecessarily on millions in revenue income, particularly with so many expressing concern over their cash-flow.”
The survey showed the biggest cause of stress for SME manufacturers is worries over finances (29 percent), such as cash-flow issues, debtors and business planning, with pressures related to winning new business (28 percent) and worries about workload (21 percent), second and third respectively. Not far off a third (29 percent) of business owners and leaders in manufacturing admit that they don’t feel fully in control of their accounts and business finances.
The ramifications of these shortcomings also appear to have a wider impact on their business with over half (52 percent) saying that they have had to defer payments of one kind or another due to cash-flow problems, including failing to pay their staff wages on time (13 percent).
“Being fully in control of your finances is clearly vital to better business decision making,” Mukesh Shah, head of outsourcing at accountancy firm, HW Fisher & Company, said. “The findings of the Exact research seem to suggest that there is a real need for better working practices and processes to be in place between accountants and their SME clients, something we pride ourselves with.
“SMEs, including those in manufacturing, are placing more and more faith in their accountants, not just to sort out their books but also in advising them over broader business decisions, and in a large proportion of cases that appears to be hampered by poor systems and processes,” Shah added.
The survey confirmed that more than half (54 percent) of SME leaders trust their accountant more than anyone else, including their own business partners (38 percent), when it comes to broader business issues. This level of trust appears to be reciprocated by accountants, with over half (51 percent) of those polled saying they feel they hold some influence over their SME clients’ broader business decision making.
While levels of trust between SMEs in the manufacturing sector and accountants seem to be high, the lines of communication don’t always appear to be good enough to support that relationship, particularly given the fast pace of business today. The vast majority of accountants (61 percent) communicate with their SME clients no more than once a month.
This low level of communication is partly down to the processes involved. One-third (33 percent) of all SMEs use Excel spreadsheets or paper records as part of their accounting processes, and only 14 percent are using cloud-based accounting systems – something that most accountants (86 percent) believe can carry huge benefits for both parties.
“The benefit cited most often by accountants for online collaboration is being able to have greater visibility of clients’ financial information [46 percent], followed by the opportunity to spot issues while they can still be resolved [44 percent] and being able to collaborate with clients on the same set of data, in real time [43 percent],” said Wagner. “With the right business and finance software, accountants can offer better business and finance advice and, with a fully automated system in place, ensure that any potential issues are flagged before they actually do any damage.
“We live in an entrepreneurial age, with the UK very much at the forefront of the trend," Wagner continued. "As our survey shows, the roles of accountants and financial support professionals are evolving and presenting new opportunities for them and their clients. This is a particularly exciting time to be bringing our cloud portfolio to the UK. Never has there been a greater need for the two sides to collaborate more effectively and we at Exact are going to be doing our part to support this evolution.”
Additional findings:
- Trust: Across all three verticals, accountants are seen by the majority of SMEs (54 percent) as the person they most trust when it comes to giving business advice, followed by their business partner (38 percent) and friends in similar businesses (35 percent). Interestingly they trust their spouses or partner more to offer sound businesses advice (29 percent) than their bank manager (18 percent).
- Stress: The single biggest cause of stress for SMEs in the manufacturing sector is concerns about finances and accounting (29 percent), followed by pressure related to winning new business (28 percent). The third biggest frustration relates to time – 21 percent said there were not enough hours in the day to complete their workload.
- Online collaboration benefits: Greater visibility of client’s financial information was cited as the biggest benefit by accountants of cloud-based systems (46 percent). The other top reasons were: the opportunity to identify issues while they can still be resolved (44 percent); followed by the ability to collaborate with clients on the same set of data (43 percent); less opportunity for human error (39 percent); reduced time travelling to client’s premises (37 percent) and less paper files to manage, meaning no more shoe boxes for year-end accounts (33 percent).
- Deferred payments: 52 percent of SMEs in the manufacturing sector have had to defer payments because of cash flow issues, 33 percent have failed to pay suppliers on time at some point; 16 percent failing to pay loan or overdraft repayments on time; 15 percent also filing tax/VAT returns late with HMRC; 13 percent failing to pay staff wages on time; and 13 percent failing to pay fixed bills (such as utilities, phone and rent).
- Cost of failed invoices: Of the 20 percent of SMEs who have failed to invoice for a job, 26 percent were for less than £500; 24 percent for £500–£1,000; 33 percent for £1,000–£5,000; 12 percent for £5,000–£10,000 and 6 percent for job worth more than £10,000.
The research:
The online survey was carried out by independent research company Atomik Research during the second week of September 2013. A total of 450 SME businesses took part in the survey, from various sectors, along with 150 accountancy practices.
Les Hunt
Editor