SMEs rely on 'gut instinct' foremost: survey

Business growth and maturity signals easier acceptance of outside advice, especially from accountants

April 15, 2013

Small to medium enterprise (SME) owners rely on their instincts more than advice from family and friends, business partners or most professional advisers, according to accounting software provider CCH.

CCH says a survey it commissioned on SME decision-making found that only 26 percent of respondents considered the failure to seek professional advice to be a factor in business failure, while 70 percent trusted their "gut instinct" over any professional advice.

The research showed the 1,018 SMEs surveyed as putting the reasons for small business failure down mainly to the inability to manage or anticipate rising costs, followed by inexperienced management, a bad business model and lack of access to capital.

SME owners appear to have slightly different views on why business fail than do accountants.

A separate CCH survey of more than 210 accountants servicing small businesses ranked bad business models as the main reason SMEs fail.

CCH says this finding was supported by Australian Bureau of Statistics research.

When pressed on which external adviser they trusted most, SME operators nominated their accountant ahead of their financial planner, business partner or lawyer, CCH says.

They were least likely to turn to their family and friends for financial and business 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," Russell Evans, CEO of Wolters Kluwer Asia Pacific, says. Wolters Kluwer
is CCH’s parent firm.

The survey of accountants found the average accountant spent 63 percent of their time handling transactional or administrative functions for SME clients, and only 37 percent providing strategic business advice.

"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," Evans adds.

"This is especially so in the critical period 12 to 24 months after starting."

The breakdown on reasons SMEs
for business failure was:

  • Failure to manage costs or anticipate rising costs - 61 percent
  • Inexperienced management - 50 percent
  • Poorly-designed business model or no business plan - 50 percent
  • Insufficient capital or inadequate access to capital - 49 percent
  • Poor or insufficient marketing - 37 percent
  • Too much expansion too soon - 35 percent
  • Insufficient time spent managing the books - 27 percent
  • Failure to seek professional advice - 26 percent
  • Poor professional advice - 21 percent.

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 or more, 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 percent of owners aged 50 or older compared with 31 percent of owners aged 18 to 34.

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