Outdated financial information stunts business growth
When was the last time your business updated its financial information? If it’s up-to-date – great. If not, you could be doing your business a disservice, as failing to keep accurate records is stunting business growth, according to new research.
The study, conducted by KPMG Small Business Accounting, found that small businesses’ management accounts average four months out of date, and relying on this ageing information is resulting in lower levels of investment and holding back productivity.
A direct correlation was identified between current financial information and likely growth in the last 12 months, with those using accurate information growing twice as fast in that time as those with nine-month-old data (by 8% and 4% respectively).
Without an accurate idea of their current financial position to guide investment decisions, small business owners rely on mental arithmetic and rough calculations instead.
When deciding whether to hire or invest in materials, over half (51%) of the respondents said they make a quick calculation of available funds based on the incoming and outgoing payments they know about or check their bank balance.
With a healthy cash flow vital to small business survival, this is potentially worrying, but perhaps not surprising given that half of the small business owners questioned are entirely self-taught when it comes to finances and two in five prepare their own accounts.
In fact, only 8% said they consult an expert when making investments.
The study also found that two in five businesses suffer from financial uncertainty, so it’s not surprising that they’re investing cautiously. But with the economy looking brighter many businesses are missing out on the benefits of improving conditions as a result.
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.”
The importance of forecasting
Accurate accounts can be supported with good financial forecasts, allowing businesses to learn from the past whilst planning for the future.
But the research found that more than half of the respondents (55%) don’t use any form of cash flow forecast.
Unsurprisingly, those that did grew by at a faster rate than those that didn’t in 2015 (9% compared to 6%), showing just how valuable this tool can be.
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.”
For tips on how to best keep your financial forecasts up-to-date take a look at our guide to cash flow forecasting.