The Importance of a good accountant for your business

Many SME owners do not realised that approximately 30% of businesses fail within 3 years and 50% within 5 years. And the common reason is poor financial management leading to unsustainable financials, inadequate/ineffective internal controls over operations and fraud or poor governance exercised by business owners.

SME owners choose to manage their financials themselves with some using just pen and paper to track their financials, without the use of any accountant. Others settle with accounting their way or make do with whatever is available at minimum resources, commonly doing it DIY or with any accounting resources that is available without due consideration of the quality.

The mindset of that financial management and accounting is just an avoidable cost and requires at best the minimum of a SME owner attention needs to change.  Although we cannot conclude that not having an accountant would be worse off for SME, we should not underestimate the value added that a right accountant would bring. Some of the value added drivers that an accountant would bring to the table include the following:

  1. Clear, Relevant and Timely Financials Drives Sustainable Business

Clear financials provide the clarity of where the business is heading, highlighting the past and current performance as well as the likely future trends by leveraging these financials. It is no longer just financials needed for compliance reporting for annual filing or IRAS tax reporting, but these data is very useful in driving business. Relevant financials provides instant insight of the sustainability of business models, its pricing structure viability and provides SME owners the first early alerts on business performance. This is akin to a military airborne early warning and control (AEW&C) system designed to detect aircraft, ships and vehicles at long ranges and perform command and control of the battlespace in an air engagement by directing fighter and attack aircraft strikes. All changes in the business environment: shifts in costs, competitors’ pricing impact on revenue quality flow through as lines of expenses and revenue movement respectively in profit or loss statement.

  1. Business Internal Controls Drives Operations

It is a common thinking that business internal controls is a necessary evil with a sole purpose to limit or restrict SME business and it is also costly to implement.  Implementing a good internal control system needs not be an expensive affairs that requires spent on computerised systems, integrated workflow and pricey customised compliance forms or worksheet. It is ultimately the quality of the people within the systems that matters.

A simple manual system of internal controls incorporating effective layer and segregation of controls, capture of pertinent information at the key point of operations can be very affordable and effective. It would need an accountant with a keen eye on the SME operations working with the SME owners to understand and map out the key internal control points to mitigate the business risk given the specific business environment, customer profile, regulatory landscape, quality of SME employees and infrastructure. A good business internal control well designed, strengthens financial integrity of the business and provides a strong foundation for the business operation to scale with controlled risks. All SME owners want to expand their business but definitely none would like to be the one to face any risks of financial or reputational when business controls break down leading to non-performance of contracts, non-payment by customers or excessive or duplicate payments to suppliers.

  1. Good Governance Drives Business

Proper governance policy and structure lead by SME owners themselves, set a good example and help drives and aligns corporate values throughout the organisation.

An accountant can help in advising proper governance from top down. It is ineffective when the employees exercise proper internal controls on payment authorisation on business expenses while on the other hand, the SME owners do it a different way.

Good governance should also covers the interaction amongst SME directors. Clear policy should be set to lay out and govern transactions with directors, shareholders or any related party. These are parties with significant control giving rise to potential situation of conflict of interests which may not be aligned to the business interests and in certain situations, even fraud.

It takes more than dedication, hard work, entrepreneurship, connection and luck to run a successful SME but having a cohesive management team with clear governance structure helps to mitigate any potential frictions amongst related parties. And with that out of the way, the battle is half won.

SME owners may want to consider partnering with an accountant who has the skill and expertise to guide them along their business journey.