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Clear and present danger: accountants must become more relevant to their SME clients

A recent survey has found that an alarmingly small proportion of small to medium-sized enterprises (SMEs) use external professionals, such as accountants, in the course of making decisions that influence the performance of their business.

Clear and present danger: accountants must become more relevant to their SME clients
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accountants must become more relevant to their SME clients
  • Michael Griffin
  • August 11, 2016
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The survey, The Voice of Australian Business, gave me pause to refl ect on how much of an influence this attitude has on the insolvency administrations we see.

Clearly, as an insolvency practitioner, my view is that professional advice is invaluable and often makes the difference between the life or death of a business. While business owners have a responsibility to ensure they keep proper and current records, it is often the case that they alone do not possess the necessary skills to make critical business decisions without a professional adviser’s input.

So, why do only 26 per cent of SMEs engage accountants, and where are the other 1.5 million SMEs in Australia getting their advice from?

In the survey, participants were asked who they turn to for advice and insight in running their businesses; the common denominator in their responses was “friends, family, and online media”.

While it is natural enough for business owners to bounce ideas o family and friends, what qualifies someone as a family or friend does not necessarily mean they have better insight or business acumen

than the business owner themselves.

Sure, if a family member or friend has relevant qualifications to give such advice, then there is nothing wrong with seeking their input. But if they have the appropriate and relevant business qualifi cations, then of course they are external professionals only if those are the terms – i.e. properly engaged and services paid for. Not at the BBQ on the weekend.

But if that family member or friend is unqualified, what the business owner risks – in addition to bad advice and its impact on the business – is the effect on the relationship between the business owner and those friends or family, which they have relied upon. In short, business owners should get professional advice from professional advisers, and not family and friends.

The survey also found that business owners rely on their own financial data in making business decisions over data provided by their accountants.

The obvious question is why? I have two possible answers.

The first is that the financial data available to the business owner, frequently through an internally maintained accounting package, is accessible in real time. Assuming that the information entered into

the accounting package is accurate and current, it can provide the business owner with a reconciled cash at bank balance, information on stock, trade debtors, aged trade creditors and wages. As expected, the

business owner feels they can make day-today decisions about the business with this information. But the business owner should be cautioned in making longer term business decisions based on this information alone.

In addition, as we see numerous times, many businesses stem from a small family business.

Repeatedly in these cases, family members, particularly a spouse, are involved in the business in a clerical function, such as performing the bookkeeping role.

That person is often responsible for handling all administration tasks, while the other spouse is generating the business income in their particular field of expertise. The problem is, in all too many instances, the spouse that is charged with those office responsibilities and the bookkeeping role, with all the best intentions, has little to no formal training on bookkeeping.

As a result, the risk is ‘garbage in, garbage out’. I have seen instances where GST is not taken into consideration or incorrectly calculated, where superannuation has not been calculated properly and where wages have been underpaid. And then the relevant government authority completes an audit

and the business is suddenly faced with tens or hundreds of thousands of dollars in claims for underpayments spanning over some years.

The second is that often the only financial data provided by the external accountant is historical in nature. Last year’s profit and loss statement and balance sheet provide little guidance to the business owner to make day-to-day decisions in the present.

What the business owner and the accountant need to do is work together to ensure the business owner has the relevant information, on order, to not only make daily decisions, but also those longer term

strategic decisions.

This comes down to cash flow and business plans. And it comes down to the accountant and the business owner working together to put in place a realistic plan – based on this information – to implement,

monitor and adjust as they go forward.

From an insolvency practitioner perspective, we have seen some spectacular business failures where conceptually those businesses should have prospered out of sight and yet failed due to a deadly combination of ignorance and inept business records. In one landmark Worrells case, the company lost no less than $10 million in 12 months, and in an attempt to recover something for creditors, we spent 12 months reconstructing the accounting records.

Beyond the numbers, beyond the skill, beyond the technical knowledge and tools that accountants have in their trade, at the base of the profession is the proposition of adding value and insight to a business.

This is achieved with accountants providing relevant and real-time analysis of cash flow and business performance to the business owners as part of monitoring an agreed and implemented business plan.

If 74 per cent of SME business owners continue not to get professional advice, I believe we will continue to see business failures due to decisions being made without the benefit of input from accountants.

Sure, these business owners may save on professional accounting fees, but the risk is these businesses may fail in circumstances where, had the business owner sought and followed their accountant’s advice, the business may have survived and prospered.

Our advice to business owners is simple – get advice. And our wish is for accountants to work with us to help them, help their client not to become another statistic in a business survey.

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