The Hidden costs of DIY accounting18 July 2012
Published in AB+F Magazine
Many small business owners are spending too much time on their books, using inappropriate accounting solutions and inefficient processes, showing the importance of professional advice – a point highlighted by recent research.
A sizeable proportion of Australia’s small and medium enterprise (SME) owners feel they are spending too much time doing their books, to the detriment of their businesses. Many SME owners could also benefit from timely professional advice to help cut confusion, save time and drive business performance.
This point was reiterated in recent work by research firm Colmar Brunton, commissioned by BankLink, which found that one third of the more than 300 Australian SMEs surveyed felt that time was their biggest frustration when it came to doing their accounting.
Another 18 per cent attributed their frustrations to a variety of factors including the stress, cost and complications involved with doing their books, exacerbated by the fact that their accountant had to re-do some of their work.
The research highlights the danger faced by an SME owner if the wrong accounting package for their needs is selected. It’s here that the crucial role accountants play in guiding this important decision should be recognised.
Indeed, those who followed the recommendation of their respective accountants had high levels of happiness (95 per cent) and confidence (91 per cent) with their bookkeeping.
Cash flow uncertainties
The research also painted a picture of a sector where few SMEs are obtaining insights about their cash flow and financial performance. Only 16 per cent are using their existing accounting packages to obtain these insights. However this type of information clearly is of critical importance, given the ongoing economic uncertainties.
While there is a proliferation of ‘DIY' accounting systems on the market – and with many of these options offering an array of sophisticated features – a surprisingly large number of SMEs said they are still required to spend time manually entering data. A total of 70 per cent cited that they are manually entering their transactions which will increase the amount of time it takes to do their books, as well as the potential likelihood of errors being made.
This is despite the availability of accounting systems that can automate data processing by delivering their transactions direct from financial institutions to their accountant.
Possibly more surprising, given the compliance work required in meeting requirements for important government regulations such as the Goods and Services Tax (GST), one third of those surveyed are steering clear of accounting technology completely by using manual systems like spreadsheets and paper records. While this choice may be perceived as a more cost effective solution by some, it can create potential limitations by restricting their ability to readily or easily generate comprehensive ‘big picture’information about their financial performance.
John Dunkerley, general manager of BankLink Australia, observed that one clear pain-point shown amongst these SMEs was their tendency to be time poor.
“By seeking professional advice on the best accounting solution for their needs, SMEs will save significant time and costs. This means they can focus on the most important thing – running their business. We continue to advocate that the SME and the accountant build a strong,collaborative relationship and that the business owner appreciates the value, and the breadth, of the advice that their accountant is able to offer,” he said.
“The array of accounting solutions available can be confusing and lead many SMEs to make a decision based on their own judgement by selecting a package based on the amount of bells and whistles it offers. The risk is that these solutions don’t match what the SME needs as they may be expensive and too complicated, particularly if they’re not using or needing all these different features."
“There really isn’t a ‘one-size-fits-all’ solution when it comes to accounting solutions for SMEs, as each business owner has unique needs and different accounting abilities. There is a lot of hype in the market right now around DIY solutions and, while these are great products for some people, it is important to realise that for others they may create even more work,” Dunkerley said.
Stronger funding capability
One benefit of selecting the right accounting package is that it will assist in cash flow management capability, one of the top concerns of small businesses. Achieving this will put an SME owner in a stronger position in dealing with banks and other finance providers, as well as making the assistance from their accountant and other financial advisers more effective in securing debt funding.
Some have managed, with many SMEs accessing alternative finance options this year, as the growth in the debtor finance industry indicates. Figures provided by the Institute for Factors and Discounters of Australia and New Zealand for the March 2012 quarter show that the industry provided $14.7 billion of receivables finance to businesses in the three months, up 3.2 per cent compared with the same period last year.
Rob Lamers, head of debtor finance at Oxford Funding, a wholly owned subsidiary of Bendigo and Adelaide Bank, said with businesses seeking to secure their cash flow in the current market, there has been an uptake of debtor finance products.
“Stagnant property prices have made it difficult for businesses to obtain more credit,” he noted. “Because debtor finance allows businesses to use the strength of their sales to secure funds, it ensures they can use their debtor ledger to support growth and avoid over-leveraging already exhausted assets such as property, or risk rejection from their lending institution when they request a bigger overdraft.”
To which he added that business owners who have control of their cash flow will have businesses that tend to do better.
“Customers who can provide the information we need to assess whether to give them credit in the form of debtor finance are going to be better off,” Lamers said.
It only serves to highlight the importance of SMEs in seeking professional advice. This will ensure they have an accurate picture of their financial performance and have cash flow information readily available for when it’s needed.
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