• With better financial visibility, small firms would have invested up to £1 billion more in the economy in the last financial year
  • Small businesses relying on four month old financial information
  • New study finds those with accurate information grew significantly faster than those with old data in the past twelve months
  • Two in five businesses suffering from financial uncertainty


Wednesday 2 December 2015

Ageing financial information is stunting growth in the UK’s small businesses, according to a study by KPMG Small Business Accounting.

The research found that with better financial visibility, small firms would have invested up to £1 billion more in the economy in the last financial year. Outdated financial information is resulting in lower levels of investment, employment, stunting productivity growth and holding back the economic recovery.

Small business’ management accounts are, on average, four months out of date, and there is also a direct link between current financial information and likely growth for these businesses.

Those with accurate information grew twice as fast as those with nine-month-old data over the last twelve months (8% compared to 4%).

Bivek Sharma, head of KPMG Small Business Accounting, comments:

“Running a growing business is a bumpy ride at the best of times, but having to make decisions based on what happened four months ago is a scary place to be. Great businesses are built on great decisions, but owners need to know where they stand today to make the right ones.”

Lack of clarity creates uncertainty

Without a true picture of their current financial position, small business leaders are relying instead on mental arithmetic and rough calculations to guide investment decisions.

Over half (51%) of owner managers approach decisions such as hiring, or investing in materials, by making a quick calculation of available funds based on the incoming and outgoing payments they know about, or viewing their bank balance.

Interestingly, half (50%) of small business leaders are entirely self-taught when it comes to finances and two fifths (40%) prepare their own accounts. Just 8% said they consult an accountant or professional adviser when investing.

This lack of a comprehensive picture may explain why two fifths of UK small business leaders (40%) are still concerned about financial uncertainty, despite the country’s relatively stable economic condition. Small business owners also spend more than two and a half hours on average each week trying to stay on top of their finances.

Dan Aylward, Senior UK Economist at KPMG, noted that “The UK’s economic recovery has been driven by rising employment but growth in productivity has so far been unimpressive. Part of the solution, and an important driver of our growth prospects, will be higher investment from business: providing workers with the skills and equipment they need to compete in the global market. Whilst the Government has championed small business as key to our future prosperity, this study shows that without up to date financial information, small businesses may struggle to reach their potential.”

Sharma comments, “Business owners are making do with what they can get their hands on, and doing a fantastic job with it too. But an incomplete picture naturally creates uncertainty and means business owners are spending more time than they should have to trying to interpret their data.”

Growth prospects depend on both information and insight 

The study finds that small business success comes from a mix of insight and bold-informed decisions.

Precise information is central to a firm’s growth prospects, with those that prepare income forecasts growing by a third more than those that did not (9% compared to 6%) in the last twelve months.

Likewise, accurate financial information allows small business leaders to make more bold decisions and capture more growth. For example, those owners who grew their business by more than 20% in the last twelve months were twice as likely to have made investments on instinct than those that grew between 1% and 9%.

Sharma, concludes: “Many business owners have the hard-won financial skills needed to be successful. But too many are lacking the data and insights to help them make truly informed decisions.

“Combining current data and real insights with small business smarts is the key to helping these firms supercharge their growth.”

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