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Sanjay Swarup from SKS Business Services argues that small businesses are failing to take advantage of advances in modern accounting practices.
 
Many SMEs are driving in the dark with no headlights when it comes to the financial impact of their decisions.
 
Our ‘Accounting for Growth’ report with CIMA and Loughborough University found that where larger companies have applied technological advances, shared services and outsourcing to ensure their financial processes generate useful management information cost-effectively, small businesses typically lag behind.
 
In a survey last year, SKS found that 45% of SMEs don’t use regular management accounts.  Without this they will have little more than gut-feel and the bank balance on which to base important decisions.
 
In SMEs, book-keeping and external reporting tend to comprise the largest proportion of the accountant’s role, with management accounting such as break-even analysis, planning and budgeting either getting relegated or not done at all.
 
The research identified a number of reasons, including the tendency of business owners to panerai replica watches view finance as a “bean-counting” rather than strategic function.
 
When businesses with this mind-set grow to a size that can support both financial and management accounting departments, the monthly management accounting cycle often continues to be held back by continuing reliance on manual management information systems, such as spreadsheets rather, than integrated accounting and ERP solutions.
 
With the monthly management accounting cycle still occupying too much of the management accountant’s time, it is not surprising that they complain they cannot improve efficiency and effectiveness as the business grows.
 
Yet, the organisation’s continuing survival may depend on making those changes. With bank finance and overdrafts still tough to get in 2014, success requires a tight grip on the finances to avoid cashflow and working capital problems. This requires forward-looking management accounts and forecasts - not relying on backwards-looking P&L reports as the main source of management information.