Home Opinion Economic agenda: The role of professional accountants within SMEs

Economic agenda: The role of professional accountants within SMEs

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SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development.

By Noma Mupazano

“Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included,”World Bank.

The importance of SMEs to economic health is clear and there is a pressing need for more professional accountants to service this segment of the economy.

For purposes of this article I have taken an example of a professional accountant to be either an Articled Clerk or Chartered Accountant. Being a member of the professional body that follows this method of training, I can better articulate the pros and cons of the skills acquired in relation to the challenges that SMEs face.

Most of us have been in contact with businesses that thrived for years under the management of the owner/founder. Many of these businesses failed when the Owner/Founder was no longer part of or as active in the business.S ome of these business failures are a result of the following issues:

  •  Inability to raise working capital or funds required for capital expenditure for the business;
  •  Failure to set up systems that will keep the business running with the founder/owner;
  •  Not having a vision for the business or the vision not being shared by the employees;
  • Poor corporate governance within the business;
  •  Inability to adequately forecast the revenue and expenditure of the business or projects;and
  •  Inability to identify key business risks or not having adequate risk management activities to mitigate the effects of those risks.

I will delve deeper into the importance of each of these issues and how professional accountants would be of assistance in resolving each.

Raising  capital   for  the  business

Financial statements and management accounts are health checks for a business.They are a requirement when an investor wants to fund a business and when one approaches lenders for loans. Investors and creditors, alike, need the information provided in financial statements to help them makean informed decision about funding a business and this includes SMEs.

Financial statements contain the financial results of an organisation over a period of time and the financial position at a specific point in time. This information is necessary to evaluate the performance of the organisation and can provide insight on the future performance thereof.

A business with well-prepared financial statements inspires more confidence to creditors and investors than one that does not have these.

Businesses also need financial statements to fulfil statutory regulations. The analysis of financial statements should serve as a decision-making tool for a business.

Setting up systems that will keep the business running beyond the life/management span of the Founder

Businesses need to set up systems which we call standard operating procedures (SOPs). Standard operating procedures are a set of step-by-step instructions compiled by a business to help employees carry out operations necessary for its administration.

A good set of SOPs are ones where someone can pick up and apply the prescribed tasks to achieve a desiredoutcome for the business.

The aim of SOPs should be to:

  •  Avoid or mitigate risk;
  • Enhance the accuracy of information;
  •  Encourage accountability;
  • Ensure validity of accounting and financial information;
  •  Ensure segregation of authority and duties;
  •  Encourage effective use of resources;
  •  Promote awareness and good practice among employees;
  •  Promote good corporate governance practices; and
  • Improve efficiency within the business.

Not having a vision for the business or the vision not been shared by the employees of the business

After having reviewed and analysed the strategies and operations of many other businesses, it makes it easier for the professional accountant to assist in determining or evaluating the vision of a business and assessing its uptake with employees.

Poor corporate governance businesses

Corporate governance is an area that is widely studied and reviewed by the professional accountants. It is the system of rules, practices and processes by which an organisationis directed and controlled.

Good corporate governance requires that a business have a board of directors made up of appropriately skilled individuals, according to the requirements of a business. Having more than one person determining the strategic direction of a business will also make a positive contribution to the vision and the longevity of the business.

A good corporate governance system also ensures that there is accountability and transparency within the business;these are elements that are evaluated by creditors and investors in credit or investment appraisal processes.

Other items that are included in a good corporate governance system could minutes of resolutions adopted by the board and minutes of the meetings.

The professional accountant is well trained in all of the above principles and practices and their input in a business would bring the knowledge of these into the business.

Forecasting revenue and expenditure of a business or projects

“But don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it” – Luke 14:28 (NLT)

This verse about following Jesus can be applied for a business, i.e.it is important to do forecasts for the business and its project(s).

Forecasting should be done for the business as a whole, for specific projects within the business and for products or services offered by the business.

Amongst the objectives of a business, making a profit is key. Failure to plan is planning to fail. Forecasting is an art, and these are skills that a professional accountant has exposure to.

It is important to analyse product or service line profitability and to come up with ways to accurately cost the same.  Such analysis forms part of decision-making tools, which a number of SMEs do not apply in their operations.If such analysis were to be performed businesses would yield more profit and they would be more likely to be more sustainable.

Identifying key business risks or not having adequate risk management activities to mitigate the effects of those risks

The Institute of Risk Management defines risk management as: “The process whereby organisations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio of all activities”.

When risks faced by a business are identified in good time this also allows the business to be proactive instead of it being reactionary. One would need to weigh the costs of being proactive and the likely losses that may ensue because of not taking action in advance.

In the absence of risk management, the business, or the projects that the business undertakes faces an increased probability of failure.

As I come to the end of this article, I hope that the benefits of having a professional accountant as a part of the team for an SME are clearer. The service provided by the professional accountant is a necessity for businesses and not a luxury.

A business may decide to engage for such services on a full-time basis and there are other ways that a business may enjoy the same benefits e.g. through consulting or out-sourcing certain aspects of the management or set up of their operations.

The vision for Zimbabwe is to be an upper-middle income economy by 2030 and I believe that this is attainable if professional accountants become more involved in the operations of SMEs.

  • Mupazano is a co-founder and executive director of Mupazano Advisory Services. She provides accounting, financial advisory, management consulting, and project development services. Mupazano is a Deloitte trained chartered accountant, who also holds a BSc. in European Business and Management, and an MBA in International Business. She has over 15 years’ experience in Audit, Advisory Services and Administration.  She  is passionate about PPPs, Public Sector accountability and Sustainable Development.