Out of date financial information stops small firms from investing
A lack of access to up to date information could be preventing SMEs in the UK from investing properly in their businesses, new research has found.
The study by KPMG Small Business Accounting quizzed one thousand small business owners and managers on their accounting methods and levels of investment. This included investment in physical assets such as machinery, equipment, vehicles and staff and in less tangible but productivity-enhancing assets such as training, intellectual property and software.
The survey found that management accounts were out of date by an average of 4.3 months. Around 7% of respondents said they would have invested more if they had access to up-to-date financial information.
These firms estimated they would have invested an average of 17.6%. Extrapolating these figures in line with small business statistics from the Office for National Statistics, the study concluded that this lack of investment could be costing the UK economy around £1 billion each year.
Keeping accurate financial records can also be crucial if you want to avoid serious cashflow problems and other issues that can sometimes lead to a business having to seek insolvency advice.
The study found that around half of small business owners and managers made key decisions in areas such as hiring and investing by viewing their current bank balance or doing a ‘quick calculation’ of available funds based on the incoming and outgoing payments they were aware of.
Half of SME owners were also self-taught when it came to the financial aspects of running their businesses, with around 40% preparing their own accounts.
The study found that those businesses that did have access to up-to-date financial information experienced a growth rate of 8% over the past 12 months. This was twice the growth of those companies whose financial information was nine months or more out of date.
The businesses that had made the effort to prepare detailed income forecasts also grew faster than those that didn’t, with a growth rate of 9% compared to 6%.
By Phil Smith