The UK is producing technology companies at a rapid rate, with one created every hour in the last five years. The capital is no longer the only focus, with powerful hubs forming across the country in Cambridge, Bristol, Newcastle and Cardiff, to name a few. In such a competitive industry, business owners need reliable financial information to meet the day-to-day demands of the business while capitalising on opportunities to grow.
However, recent research we conducted at KPMG Small Business Accounting found that small business technology leaders are basing their financial decisions on information that is, on average, four months out of date. Worryingly, there is also a direct link between access to solid financial data and growth prospects. The study found that UK small businesses with up-to-date information grew twice as fast as those with nine-month-old data (8 per cent compared to 4 per cent). To put it another way: those firms relying on old data are missing out on growth opportunities.
One threat to owners of small tech firms is an over-reliance on mental arithmetic to guide investment decisions. Indeed, over half (51 per cent) approach decisions such as hiring, materials or investing in marketing by making a quick calculation of available funds based on incoming and outgoing payments, or by simply looking at how much money is in their bank account.
This lack of a comprehensive financial picture may explain why almost half of small business leaders (43 per cent) are still concerned about financial uncertainty, despite reasonably stable economic conditions. This invariably means it is harder for leaders to make the decisions that matter, and could be delaying investments in everything from new staff to new equipment.
This uncertainty can translate to bigger demands on time, and while running a young business often necessitates being a jack of all trades, no one can be the master of everything. Trawling through spreadsheets and managing business finances can be very time consuming, with the average leader of a small technology company spending two hours a week on this task alone.
With almost two thirds (61 per cent) of tech owners being entirely self-taught when it comes to finance, and over a third (34 per cent) preparing their own accounts, the challenges and time constraints of running a fast-moving company can be exacerbated. The fact that there isn’t always someone to lean on when making critical decisions can also add to the anxiety.
Running a business can be exciting and pressured in equal measures and while finance is just one, admittedly crucial, component to a business, it’s essential that financial management doesn’t become the undoing of an otherwise successful firm.
With a larger pool of digitally skilled workers high on the UK’s technology community wish list, effective financial management for fledgling businesses, and the subsequent growth this can support, is important for the industry as a whole. Providing training as necessary, and supplementing their existing skills, can empower them to make the right decisions, based on up-to-date information and good counsel.
There are a number of processes and solutions that small technology businesses should look at to maximise their growth prospects.
Management accounts are intended to provide a comprehensive financial picture of how a business is performing, but their value can be lost if they are not timely. Online up-to-date accounts can not only keep a business updated on their current bank balance, but are able to forecast, tracking incoming payments and invoices.
Forecasting also enables small companies to invest with confidence, and can be tailored to each business model, from what percentage of quotes a business tends to win, to what times of the year are busiest, or how long it usually takes to convert. While it is only ever a guideline, and certain expenses can be difficult to plan for, effective forecasting can make a huge difference to business growth.
Seeking advice can provide a much-needed shoulder to lean on, whether that is through financial advisors and accountants or family and friends. The role of professional accountants is changing, and they are no longer just there to do your accounts, but can provide both business consultancy and advice.
The technology industry is evolving at a rapid pace and businesses require constant innovation to remain ahead of the curve. Tech leaders face complex issues around intellectual property, data protection, third party material, domain names and website and software development. Yet some of the smallest and most vulnerable companies are unknowingly putting their growth at risk by relying on outdated information.
Many technology businesses are masters of using metrics and analytics in their day-to-day work, and have a wealth of skills to tap into if supplied with better data on their own company’s performance. Having the right tools and data can empower leaders to make great decisions, and it’s this combination of current data, real insights and business smarts that will supercharge growth.
Bivek Sharma, Head of KPMG Small Business Accounting
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