The Critical Role Of Accountants In Supporting SMEs

A key question for accountancy firms is:

“Does the delivery or non-delivery of business advisory services reflect how SMEs rate Accountants?”

To understand the impact of ADVISORY SERVICES on SMEs, we need to identify the current challenges confronting them.

High interest rates.

High inflation.

Business failures.

The issues raised by Paul Robson, CEO of MYOB, in the Financial Review last February:

• Fiscal management skills not evident.
• Significant problems after six months of trading.
• Lack of understanding of suppliers’ payment terms.
• Lack of familiarity with credit terms.
• Inappropriate systems for control of debtors.
• Not planning for payments to the ATO.

The Australian Small Business Ombudsman, Bruce Bilson, stated last week, “The ATO in hot pursuit of tax debt.” These are the debts owing by SMEs.

Mr Bilson also indicated:

• Small business conditions have deteriorated 3.5% in the last 12 months.
• Business operating environment has been declining in the past two years.
• Economic activity generated by small businesses currently at 33% of GDP, compared to 40% component of GDP in 2006.
• Small businesses currently provide jobs for 42% of the private sector workforce – this was 53% back in 2006.

How do these challenges affect accountants?

Most accountancy and bookkeeping firms servicing SMEs are also SMEs themselves, thus these issues also apply to them.

The warning from the former Tax Commissioner Chris Jordan back in 2022 most definitely applies. Mr Jordan was a Partner in a major accountancy firm prior to joining the ATO.

“You must understand that if your business model is high volume, low margin, simple tax returns, your business will not be viable in 3-5 years’ time.”

We are now one to three years’ away from that the statement!

Mr Jordan’s advice to accountants:

“You should be looking to diversify to remain viable longer term.”

“Focus on becoming a brilliant and trusted advisor.”

The key message

The SME market is facing a lot of problems.

SMEs need additional assistance to survive these problems.

Accountants are the logical group (but not necessarily the only group) who can supply business related advice to SMEs.

SMEs need support throughout the year

The comments by Mr Robson after MYOB completed a survey of SMEs is really highlighting the need for ‘ACCOUNTANCY SERVICES TO BE SUPPLIED TO SMES THROUGHOUT THE YEAR’.

Debtors management: Australia has one of the highest debtors’ days outstanding in the world. Yet Mr Robson highlighted that a lot of SMEs had no idea what their debtors’ days outstanding figure might be, but it will definitely be higher than 30 days.

Businesses need properly implemented DEBTORS SYSTEMS introduced, which highlights the need for a terms of trade agreement – retention of title agreements – possible PPSR registration – highlighting on the tax invoice the due date for payment – prompt dispatch of statements – debtors’ days outstanding monitoring a high priority key performance indicator.

Businesses need to understand what their supplier payment terms might be, not just assume that they will be granted 30 days to pay their bills. Many suppliers are demeaning cash with order or cash on delivery as they are very mindful of the failure rate in SMEs. However, according to the MYOB survey, people going into business were not aware of this.

Forward planning for when payments are required to be made to the ATO is a fundamental consideration in planning how a business will operate.   SME operators need advice that they should consider setting aside the amounts owing to the ATO into a separate bank account, so that the money is available when the payment is due.

Business plans are fundamental to effective business operations. Unfortunately, many businesses have commenced without a properly prepared business plan.

Budgets – cash flow forecast – key drivers for the measurement of key data such as debtors’ days outstanding – projected balance sheets, with the emphasis been that the budgets are the ‘FINANCIAL INTERPRETATION OF THE BUSINESS PLAN’ are vital.

These are some of the processes that the business vision of the entrepreneur should be subjected to, before they commence business, to ensure that they have enough money. If they haven’t, a recommendation to not proceed to go into a business at this stage by their accountant will undoubtedly be very beneficial for most of them.

Accountants should utilise their websites and social media pages to communicate the importance of financial advice before commencing business and throughout the life of the business, to ensure success.

Accountants need to provide SMEs the type of services larger businesses receive from their employed full-time accountant or CFO – to guide the leadership team in all aspects of running a business.

A key approach is to establish a ’52-Week Business Enhancement System’. This identifies the key requirements of an effective business management system to assist SMEs to survive. This includes:

Daily reports: sales yesterday – bank balance – payments due this week – average sale.

Weekly performance report and profitability report: larger businesses prepare these types of reports to allow them to immediately identify if something went wrong during the week that has just ended. For example, the gross profit rate may have been expected to be 44%. And if the actual gross profit percentage was only 32%, there is an immediate enquiry to find out what went wrong and to fix it.

If an SME fails to receive this type of report in a timely manner, there won’t be a chance for them to recover the loss. This will ultimately send the business broke.

Monthly financial accounts for each individual business activity compared to the budgets showing the variation report: This is the second level of monitoring how the month’s performance has compared to the budget. Firstly, the weekly performance report and profitability report and secondly, the monthly financial accounts.

Where do accountants start?

Accountants and bookkeepers can start by NOT being the HISTORIAN.

What happened during the previous financial year doesn’t really help the SME. Finding about it eight/nine months later is not helping their business operations.

Accountancy firms offering this service are the ‘SME’s Guides to the Future’. This is the role that you should be adopting. This is the concept that the former Tax Commissioner had when he said that accountants should “focus on becoming a brilliant and trusted advisor.”

Your clients don’t need you to be a “brilliant and trusted advisor” to complete their taxation returns!

In our opinion, this description relates to you providing services to assist your client to survive and prosper!

There are thousands of SMEs around Australia who are showing a willingness to ‘SCALE UP THEIR BUSINESSES’. These are the types of clients that you will attract if it becomes known that you have differentiated your services, by providing real accounting services to SMEs.

You will not attract these clients and you cannot expect them to make contact with you, unless they can ascertain that you are fair dinkum about providing entrepreneurs these services.

ESS BIZTOOLS can help!

To find out how, visit our website – www.essbiztools.com.au.

Alternatively, CLICK HERE to book a complimentary Zoom meeting with our Managing Director, Peter Towers.

Upcoming Webinars

ESS BIZTOOLS is presenting a series of information webinars, going through some of the key components of the products that will assist you to DELIVER Advisory Services to SMEs. Click on your preferred webinar below to register, free of charge.

Implementing Virtual CFO Services: Wednesday 4 September at 11am AEST

ESS BIZTOOLS Paralympics Sale Spectacular

Gold medal deals await, with ESS BIZTOOLS offering discounts on our subscription packages until 16 September.

Advisory Intro Package

$49.90 (including GST) 12 x monthly or upfront discounted price of $499 (including GST) – more information HERE

Business Advisory Services Starter Package

$99.90 (including GST) 12 x monthly or upfront discounted price of $999 (including GST) – more information HERE

Advanced Package

$429.90 (including GST) 12 x monthly or upfront discounted price of $4,299 (including GST) – more information HERE

Financial Forecasting Package

$889.90 (including GST) 12 x monthly or upfront discounted price of $8,899 (including GST) – more information HERE

Want to know more?

Visit www.essbiztools.com.au.

If you would like to have a discussion about how this concept of virtual CFO services can be supplied by Australian accounting firms please ring our Managing Director, Peter Towers, on (07) 4724 1118 and we will arrange a complimentary 45-minute Zoom meeting to discuss your firm’s position and to give you our advice.

We believe that this is the blueprint for the delivery of an enhanced range of services by Australian Accounting and Bookkeeping firms to assist SME businesses to add value to their businesses and to assist accountants and bookkeepers not only to attract but to retain outstanding talent who want to be involved in the delivery of “real accounting services”.

Tell us what you think

We would like to ensure that our articles remain relevant, insightful and informative.  We value your input, so it would be appreciated if you could take a few minutes of your time to complete our survey – click here.

Thank you for your assistance in making Accountants Minute better.

Subscribe to Accountants Minute

Want to keep up to date with the latest issue of our Accountants Minute newsletter?

Click here to subscribe, free of charge.