With better financial visibility, small firms would have invested up to £1bn more in the economy last year, according to research by KPMG’s small business accounting.
The study suggests that out-dated financial information slows SME growth and also results in lower levels of investment and employment, stunts productivity growth and holds back the economic recovery.
Small business’ management accounts are, on average, four months out of date, KPMG said. The research found a correlation between small firms’ access to information and how much they grew in the last year.
Small business with accurate information grew twice as fast as those whose data was nine months old over the last 12 months.
Bivek Sharma, head of KPMG small business accounting, said, “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.”
This lack of information and clarity creates uncertainty amongst business owners, KPMG said.
Two in five small business leaders say their firm suffers from 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 but still struggle with decision-making, the research revealed.
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.
Only 8% of small business leaders consult an accountant or professional adviser when investing.
Dan Aylward, senior UK economist at KPMG, said, “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.”
The research also found that 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, added, “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.”Sinead Moore