|Survey finds most SMEs shun professional advice, possibly at their peril
|11 April 2013
|SME owners favour “gut instinct” above all, rank accountants most trusted external adviser
Sydney, 11 April, 2013 – Small business owners are prone to a “lone wolf” approach in decision-making, with the vast majority much more likely to trust their own instincts over advice from family and friends, their business partner and even most professional advisers, according to new research.
The research revealed what SMEs see as the reasons for small business failure, with the inability to manage or anticipate rising costs seen as the main reason, followed by inexperienced management, a bad business model and lack of access to capital.
The findings are based on a survey of more than 1,000 Australian owners of small-to-medium enterprises (SMEs) commissioned by accounting software provider CCH, a unit of global information services group Wolters Kluwer.
With ABS data(1) showing that more than half of small businesses in Australia do not survive beyond their first four years, the CCH survey revealed a cavalier attitude among SME owners toward the value of professional business advice.
Only 26% of respondents considered the failure to seek professional advice to be a factor in business failure, while 70% trusted their “gut instinct” over any professional advice.
When pressed on which external adviser they trusted most, SME operators nominated their accountant ahead of their financial planner, business partner or lawyer. They were least likely to turn to their family and friends for financial and business advice.
CEO of Wolters Kluwer Asia Pacific, Russell Evans, said the findings suggested SME operators guarded independence of decision-making closely, but could be too willing to back their own instincts ahead of sound professional advice.
“It’s not surprising a small business owner will micromanage, especially in the early stages of their business life, but this should not be at the expense of being open to advice from trusted professionals,” he said.
In contrast to the response from SME owners, a separate CCH survey of more than 210 accountants servicing small businesses ranked bad business models as the main reason SMEs fail. This view is backed up by ASIC data(2) on 5,600 business failures in 2011-12, showing poor strategic management to be the most common cause of failure (19%), with another 15% of failures attributed to poor financial control.
“SME owners and accountants appear to have slightly different views on why business fail. SMEs have identified accountants as their trusted external adviser, but they may not appreciate that their accountant is there to help design a sound business plan and avoid the pitfalls that can bring down a business. This is especially so in the critical period 12 to 24 months after starting,” Mr Evans said.
CCH survey: Reasons why SME operators think small businesses fail
Note: Respondents able to cite more than one reason
- Failure to manage costs or anticipate rising costs - 61%
- Inexperienced management - 50%
- Poorly-designed business model or no business plan - 50% Insufficient capital or inadequate access to capital - 49%
- Poor or insufficient marketing - 37%
- Too much expansion too soon - 35%
- Insufficient time spent managing the books - 27%
- Failure to seek professional advice - 26%
- Poor professional advice - 21%
CCH’s survey found SME owners typically open up to the advice of their accountant as their businesses grow. SME owners with a higher turnover ($1m+) were more likely to consider their accountant as their most trusted adviser, not only for transactional accounts but for advice on business growth, than owners of businesses with turnover under $1 million. Older SME owners were also more likely to rank their accountant as their most trusted adviser (47% of owners aged 50+ compared to 31% of owners aged 18 to 34).
The reluctance of SME owners to seek out professional advice is borne out in CCH’s survey of accountants. This found that the average accountant spent 63% of their time handling transactional or administrative functions for SME clients, and only 37% providing strategic business advice.
Official data(3) shows there were just over two million small businesses registered in Australia in June 2011, employing 4.8 million people and contributing $313 billion in economic value each year.
When probed on the impact of small business failure, SME owners said the biggest costs of failure were: the financial cost to the owner; financial cost to staff; emotional toll on owner and family; financial cost to unpaid creditors/suppliers; and the flow-on effects to the economy.
“SMEs are often cited as the engine room of the Australian economy, but this should more accurately be described as ‘successful’ SMEs,” Mr Evans said.
“When a small business fails there are knock-on financial and emotional effects far beyond the owner’s direct financial loss. And what is often not recognised is the strain borne by thousands of business owners who struggle to make underperforming businesses profitable,” he said.
“By being open to advice in the critical early stages, SME owners are better placed to adjust their plans and model so as to avoid the considerable financial and emotional cost of business failure.”
The CCH research also validated the popular ‘lean start-up’ business principles held by many young entrepreneurs, finding that two-thirds (66%) of SME owners in Australia believed that business failure was a stepping stone to business success.
Click here to read the research report: 'SMEs – the fine line between failure and success?'
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About CCH, a Wolters Kluwer business
CCH (www.cch.com.au) is part of Wolters Kluwer, a market-leading global information services company focused on professionals with annual revenues of (2012) $4.7 billion and approximately 19,000 employees worldwide.
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About the survey
The small and medium enterprise (SME) study was conducted among 1,018 business owners or business decision makers of organisations with 200 employees or less. The accountant study was conducted among 212 accountants or principals of accounting firms servicing small and medium enterprises. Fieldwork commenced on Friday, 8 March and was completed on Thursday, 21 March, 2013. Both studies were conducted online amongst members of a permission-based panel. After interviewing, SME data was weighted to the latest business count estimates sourced from the Australian Bureau of Statistics.
(1) Of 316,850 new business registrations in 2007-08, just under half (48.6%) were still operating in June 2011.
(2) Australian Securities & Investments Commission, Australian Insolvency Statistics, 2011-12, September 2012
(3) Department of Industry, Innovation, Science, Research and Tertiary Education: Australian Small Business - Key Statistics and Analysis, December 2012