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Accountants debate bad finance habits of SMEs

12th Nov 2013
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Lack of budgeting and planning, incomplete and late records and not watching their cashflow are just some of the bad habits of SME clients, according to accountants.

In the latest video conversation series with cloud accounting software firm Exact, owner of Atria Associates Paul Scholes and director of Clarand Accountants Claire Priestley discuss the relationships they have with their small to medium sized business clients.

In the first video out of four, Scholes and Priestley, along with Exact senior sales executive and former practitioner Jiten Modhwadia, discuss their ideal small business client and some of the bad habits they’ve experienced.

Recent Exact and AccountingWEB research found that practitioners regularly encountered missing or late files, unrealistic expectations that returns would be prepared within a short time, poor record-keeping systems and a lack of business planning.

Scholes found budgeting and planning to be “practically non-existent” among his small business clients.

“In the voluntary and charitable sector, where they are forced to, they spend a lot of time on forecasting and budgeting. But with small business it’s always a second thought,” he said.

His other trouble spots included small firms that failed to market themselves properly, and a failure to make best use of technology and business methods. Aiming for growth as the “be all and end all” rather than making sure the business is sound to start with was another shortcoming.

Priestley, meanwhile, was frustrated by clients not being aware of what’s going on with their cashflow and in the bank.

“There’s a lack of understanding. If they’re a limited company, what they’re expected to do as a director and understanding of what a dividend and directors’ loan account is,” she said.

Next on her list were poor management systems and processes, records in poor condition and a lack of procedures around the new RTI payroll regime.

Scholes’s ideal small-to-medium size business clients are in the manufacturing sector. He loves working with businesses that have a plan and aren’t just “jumping in with both feet, hoping it’s going to work.”

Contrasting start-ups with established businesses, Scholes said that you come in cold with start-ups and need to invest a lot of time to get them up and running - but they can be the most exciting clients.

Priestley on the other hand enjoys working with SMEs that have a passion for their business, where she can apply her financial director skills to rather than being “just an accountant”.

Transferring her business ethos to start-up clients and introducing them to new products are some of the good points of working with start-ups, but it could be a “long way down the line before you reap the rewards of you work”, she said.

Do you prefer working with start-ups or established SMEs - why? Watch and comment on our video and let us know.

Replies (3)

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By redboam
13th Nov 2013 19:46

Online Planning and Forecasting

One of our clients has started producing profit and cash flow forecasts using Figurewizard. It's an interesting site because just about any fool can use it and the forecasts appear to be comprehensive.



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By johnjenkins
14th Nov 2013 10:42

With SME's

they tend to fall into 2 categories. The business that's full of ideas, forecasts and wants to use the latest technology to advance their corner. Then you have the person that is good at their work and doesn't actually have a clue about paperwork and hasn't the money to pay for all the new fangled techno stuff nor the time to spend on economics. These days there aren't many in between.

To advise clients properly Accountants have to be up to speed. Years ago we only had self assessment to deal with. Now technology is taking over too quick for people to grasp. You get one thing just about sorted and then it changes for something else. Europe doesn't help with their overburdening changes (which seem to be just for changes sake).

I cannot see these bad habits going away because the "generators" are not always the "most economic".

As for clients. I like em all.

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By dbowleracca
29th Nov 2013 23:56

It's hard to make startups profitable
We had a massive campaign that lasted quite a while, targeting startups and offering to help them get organised and be successful.

We also had a really good relationship with most of the bank managers who dealt with startup businesses and referred quite a lot to us.

What I found was that many people had started in business without any preparation - either through redundancy, or by leaving their job with a couple of short term opportunities.

Very few had a plan for what they really wanted to achieve and couldn't afford to invest in us helping them create one. That applies to the business plan and forecasts/budgets.

I also see the problems mentioned above with a lot of SMEs, no plan, budget or forecast, meaning they don't know what to expect and quite often get cash flow problems.

I've also found a lot of problems with established SMEs who don't have adequate accounting records. You can tell them what needs to change, offer free training and so on, but if they don't listen/change then you're wasting your breath.

I had a client that went into liquidation earlier this year for many of the reasons listed above:
1) chased turnover rather than profit
2) very poor accounting record
3) no budget or cash flow or business plan
4) no marketing plan - they were reliant on new customers from word of mouth etc

We had agreed a solution to many of them, before it was too late, but the big issue they had was time/priority management so nothing happened.

I'm now working with them again and i think they'll actually succeed - the foundations will be in place this time.

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