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Survey damns SME financial management skills

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Tuesday October 26, 2010 at 5:27pm

A recent survey of small businesses by simplybusiness.co.uk has found that many suffer from inadequate financial management and an absence of basic business planning skills which leads to uninformed decision making.

Apparently 29% of the SME owners admitted to failing to keep adequate checks on the company finances because of other pressures on their time. The survey suggests than SMEs review their detailed balance sheet and profit and loss forecasts only every 18 weeks on average – that’s 4 months give or take, a third of the year. Time enough for turnover to shrink or for profitability to take a dive.

I can understand why this happens and as a small business myself I empathise.

Small businesses, especially the owner managed or family business are often grown by individuals with expertise in a particular profession or industry sector. Furniture manufacturers aren’t started by management gurus, they are started by cabinet makers and carpenters. Even service businesses, where you might expect management skills to be more prevalent, are started by the practitioners – whether that’s lawyers, doctors, dentists or car mechanics. So we perhaps shouldn’t be surprised that the business owners don’t necessarily know what business indicators they should track or how to get hold of the information.

There are some simple steps any SME can take and it’s something we work with our clients on all the time:

  • setting those all important Key Performance Indicators 
  • preparing annual budgets and forecasts 
  • putting simple systems in place for producing and reporting on the numbers – commonly known as the management accounts 
  • implementing regular Board and management meetings to review progress and agree action plans.

The right business choices can only be made if we have the facts and figures to inform our decision making. Every business is different, it’s true, but many of the things to look out for are the same. Agreeing the ‘things to watch’ is the first step, once you’ve got that you are well on your way to gaining full control.

Andy Parker
Chartered Accountant and Business Advisor



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