A few days ago I had a meeting with a client (he had asked Viridity to consult on what systems might be suitable for his business) and his accountant (who had asked to sit in on the meeting as he felt he had something to add to the discussion).

The client was frustrated by the fact that he couldn’t get the information he needed to run his business from the software he was running (no names, this post is not about software per se).  His concerns were mainly around inventory management – he was frequently experiencing stock outs of one product or another, whilst at the same time his overall stock on hand was far higher than he felt it should have been (a point on which all present agreed). 

The accountant put up lots of arguments for why the software in place was “the right solution” – it was easy to use, it was easy to find staff who were familiar with the software, the software was reliable, it offered a “complete range of really good reports”.  This last point though concerned me: it was clear that the accountant’s view of what comprised a complete range of reports was a Profit & Loss and a Balance Sheet (i.e. everything needed to prepare a tax return).  The idea that the client might want to access additional reports that would help to run his business better seemed not to have occurred to the accountant.  I should stress that I know many accountants who would be as horrified as I was by this view!

This experience made me ponder a question: do SMEs in Australia have the financial information they need to improve the performance of their businesses?  This client felt he did not, but I know of far more businesses that do not seem to worry about their financials.  I know this is a very sweeping assertion, but I wanted to put up a number of observations that suggest to me that this is the case.  I would love to be howled down on this topic!

·         Only a minority of businesses routinely run a profit and loss report, and even fewer run a balance sheet.  If these reports are run, it is as part of the process of preparing / lodging the BAS, rather than for the enlightenment of the business owner / manager.

·         Those businesses that do run reports do not routinely have any basis for measuring whether the figures reported are “good” or “bad”.  For example they don’t compare results to a benchmark of other similar businesses, they don’t measure whether the performance is improving or worsening compared to last year.

·         Very few SMEs routinely prepare budgets (compared to large business where well in excess of 90% of organisations budget annually).  The (partial) exception to this in the SME sector is not for profits.

·         In almost 10 years of consulting to SMEs I can count on the fingers of one hand businesses the businesses that have demanded any form of ratio or other financial analysis.

·         Most SME’s do not keep their accounts up to date – they will for example finalise their data entry and their bank rec 2 or 3 months in arrears, so any reports they do run will be so old as to be more or less useless as a basis for making decisions.

I could add lots of other observations that suggest to me that Australian SMEs do not routinely use financial information to make business decisions to improve the performance of their business, but I would prefer to hear some views from other people.  What are your experiences in this area?  Do you routinely run the sort of reports and analysis I have outlined above?  If not why not?