A worrying number of small businesses believe they do not have enough cash reserves to survive another economic downturn, a study by Forbes Insights in association with ACCA (the Association of Chartered Certified Accountants), Certified General Accountants Association of Canada (CGA-Canada) and CNDCEC, the professional body for certified accountants in Italy, has found.
The study was based on a survey of more than 1,750 small and medium-sized enterprises (SMEs) in Canada, China, Italy, Singapore, South Africa and the UK, with 30 per cent of the sample micro-businesses employing fewer than 10 people.
It shows that while most SMEs believed the worst of the recession had past, there was an unexpectedly high number of businesses - between 31 per cent and 54 per cent in each country, including those which have seen high growth and were less affected by the global downturn - who felt they did not have adequate cash reserves to survive another financial crisis.
Those SMEs surveyed said the recession has forced them to become better businesses, and if they take on risk it is only where they can have control. Growing businesses, especially in the more dynamic economies, appear to be facing stiffer competition and rising costs, putting profit margins under pressure.
According to respondents, lenders appear to be directing funds to larger SMEs and big corporations rather than micro and small enterprises. The study also found that credit is being directed away from working capital towards capacity building investments and is increasingly likely to be secured against personal or business assets, while equity investments are drawn to acquisitions and to financing local or international expansion.
As commercial providers of finance have become reluctant to finance working capital, assume customer credit risks or re-finance debt, the weight of expectation has shifted to shareholders and trade creditors.
The study found that those businesses that value professional or expert advisers above others have performed better - professional advice has given lean SMEs more confidence about their chances of survival by ensuring that they have fewer urgent financing needs and better access to credit.
The study has made a number of recommendations.
SMEs must consider factors such as interest rate increases, exchange rate volatility and inflation when developing business plans and risk management policies.
Governments can help reduce uncertainty through early and reliable commitments on tax, spending, monetary policy and regulation.
Governments must consider strengthening loan guarantee schemes for SMEs to provide solutions where sufficient collateral cannot be provided.
More businesses should explore supply-chain finance, whereby large customers provide credit to small suppliers by factoring their own invoices, and governments, commonly the most creditworthy customers of SMEs, should consider similar means of financing their suppliers.
Business advisers and government-funded enterprise support agencies must prioritise improving credit- and investment-readiness among SMEs by explaining the information needs of capital providers and championing other sources of finance such as business angels where appropriate.
Providers of capital must be clear about their lending or investment criteria and consider the need for security or personal guarantees flexibly, case by case.
Businesses should use financial and credit information on their customers and ensure their information is available to prospective trading partners.
Governments must acknowledge the critical importance of trade credit as a financial market, ensuring that credit information is widely available and that creditors have access to reasonable means of enforcing their claims.
Business advisers and government-funded enterprise development agencies should be looking for undercapitalised SMEs and actively encouraging action if necessary.
Providers of capital should acknowledge the value of professional advice in their communications with SMEs and consider directing unsuccessful applicants to professional advisers.
Helen Brand, ACCA chief executive, says: ”It has been a challenging two years for small businesses around the world but they have emerged, on the whole, somewhat wiser, more in control and cautiously optimistic. However, the recovery, such as it is, presents its own unique risks. As this research demonstrates, having the tools, the support and the confidence to navigate these risks can make all the difference between continued growth and stagnation for small businesses.”
“Although there are signs of economic recovery, the SME sector is not out of the woods yet,” says Anthony Ariganello, president and CEO of CGA-Canada. ”We believe it's vitally important to understand the issues faced by this sector - and having taken an in-depth look at the current situation, it's clear there are things to be done by policy makers, by business advisers, by financial institutions and by the businesses themselves.”
Giancarlo Attolini, board member in charge of International Affairs at CNDCEC, says: ”Professionals can play a crucial role in the current financial crisis, supporting SMEs in their decisions concerning financing decisions and business planning. Good budgeting of financial resources and ability to secure third-party capital proves to be key in surviving the crisis. The survey shows that financing needs to change, based on enterprises' needs and geographical location. Micro and small enterprises, which represent the main clients of most practitioners, went through great difficulties in securing finance during the credit crunch; professional skills and advice can adequately support them in accessing finance and managing their cash flows.'
The Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabii (CNDCEC) was established in 2008 following the merger of the two previous Italian accountancy bodies, namely Consiglio Nazionale dei Dottori Commercialisti and Consiglio Nazionale dei Ragionieri.
CNDCEC represents the accountancy profession in . It is a public entity regulated by law, under the supervision of the Ministry of Justice. CNDCEC is one of the founding members of the International Federation of Accountants and The Fédération des Experts Comptables Européens.
The main fields of activity of the Italian accountancy profession are: accounting, taxation, auditing, corporate governance, management consulting and insolvency.
For further information, please contact:
CNDCEC International Affairs
Piazza Della Republica 59 - 00185
Tel: +39 06 47863319, fax: +39 06 47863637
Founded in 1908, the Certified General Accountants Association of Canada serves 75,000 certified general accountants (CGAs) and students in and more than 90 countries. Respected accounting and financial management professionals, CGAs work in industry, finance, government and public practice.
CGA-Canada establishes the designation's certification requirements and professional standards, offers professional development, conducts research and advocacy, and represents CGAs nationally and internationally.
For further information or to request an interview, please contact:
Tel: +1 604 307 0212
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public-interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
For further information please contact:
Colin Davis, ACCA Newsroom
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