Learn the basics of financial management

Poor financial management is costing Britain’s small businesses £1.5 billion a year, thanks to a lack of basic financial know-how.

This is the conclusion of a recent survey into the financial practises of small businesses.

The survey of 677 businesses by Critical Research found that three-quarters of them have experienced “significant financial problems” in the last year. These include late payments, tax return errors, payroll mistakes and unexpected overdrafts. Income and corporation tax are proving the biggest headache for SMEs.

Another issue revealed by the research is that nearly half of all small businesses set their prices without having sufficient knowledge of the costs involved in producing the goods or services. There is also a lack of use of specialist bookkeeping software, a demand for more advice from accountants and, in some industries, a poor payment cycle.

Clive Lewis of the Institute of Chartered Accountants in England & Wales (ICAEW) believes the fundamental problem stems from small business owners and managers being unfamiliar with the “language of finance.” This is then compounded when they get involved in the more complex aspects of specific areas of accountancy.

There are courses available specifically for small businesses that cover the basics of finance and give owner-managers an insight into what can be a very complex area. Lewis suggests contacting your local Business Link to find out more about these.

Some larger accountancy firms run similar courses for existing and prospective clients. Your own accountant may know about these.

In addition to learning more about the “jargon of business,” Lewis says that “developing an understanding” with your accountant can improve your understanding of finance. Rather than only speaking with your accountant once a year when your accounts are being done, he advises keeping in regular contact, thus reducing the distance between yourself and your finances.

More information on accountancy can be found at icaew.com.

See also: Hiring an accountant – a small business guide

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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