SMEs trying to squeeze financial management into 3.6 hours a month

Britain’s 5.3 million strong army of sole traders and micro businesses estimate they’re spending the equivalent of 2.5 million working days each month on finance management.

Britain’s 5.3 million strong army of sole traders and micro businesses estimate they’re spending the equivalent of 2.5 million working days collectively each month on finance management, a figure which could be a serious underestimation according to KashFlow, providers of easy to use business management software.

KashFlow commissioned a study among sole traders and owners of businesses with less than ten employees, to get a better understanding of the pressures they feel when it comes to things like balancing their books, managing cashflow and doing their annual tax return. The study uncovered some surprising findings.

Despite almost a third (32 per cent) admit that managing their finances leaves them feeling stressed, only 6 per cent rate their finance management abilities as ‘not good’ – with 87 per cent rating themselves either ‘really good’ or ‘not bad’ at doing things like keeping on top of cashflow, managing payments and staying compliant.

As part of the study, KashFlow considered the list of jobs that are part of financial management for sole traders and micro businesses, all of which they say they’re currently fitting into less than half a day a month.

These include:

Creating and issuing invoices to customers
Chasing late payments
Recording all income and expenditure
Reviewing corporation tax liability to ensure money is put aside
Reviewing payments to owners and directors (including shareholders)
Paying staff salaries
Paying suppliers (including rent) and ensuring they’re not paid twice
Managing expenses (paying staff and ensuring expenses are billed to customers)
Managing staff pensions
Reviewing prices against competitors to ensure the company is competitive
Costing new jobs and creating quotes (or prices and estimates) based on time it will take to do the job and/or supplier costs
Profit forecasting – Ensuring that the company will make a profit in the short and long term and making adjustments to the business where there is a discrepancy
Cashflow forecasting – Ensuring that the company can pay invoices when they full due
Reviewing investment for growth opportunities and calculating the opportunities and risks
Regularly reviewing supplier costs to ensure value for money
Reviewing capital investment needs and funding

As a business management tool, KashFlow makes all these tasks quicker and easier, with the exception of competitor price analysis and reviewing supplier costs.

Oliver Shaw, CEO of KashFlow says, ‘It’s really encouraging to see that many of those we surveyed feel confident and in control when it comes to their business finances, especially as we know it’s not their favourite thing to do.

‘However, the figures suggest that many could be underestimating how long they actually spend each month, or perhaps overlooking important finance management tasks which will help them stay in better control of their business in the long term. We know that they would far rather be earning money doing what they love than staring at a spreadsheet. It’s one of the reasons why software like ours exists; to make the time intensive and tricky things easier for people.’

KashFlow say the impact of non- compliance on small firms and sole traders should not be underestimated, with penalties being enforced for late payment and filing, or mistakes with a broad range of things including tax returns, statutory accounts to Companies House, PAYE, P11D and National Insurance.

These can have serious consequences for micro businesses, a sentiment echoed by Roy Maugham, Tax Partner at UHY Hacker Young who recently says, ‘There is increasing pressure on small and mid-sized businesses to spend their time and money on systems to ensure that tax affairs are accurate and up to date. Without adequate care, small businesses are at risk of being pulled up over minor mistakes or small disparities, which could incur disproportionately heavy fines and penalties.’

Shaw concludes, ‘Sole traders and micro businesses make a huge contribution to our economy, and our research shows they’re a really passionate and motivated group, who love being their own boss. Staying on top of their finances is vital for them to be compliant and ultimately, stay afloat, so they should consider tools that allow them to do it in a smarter and more efficient way.’

Further reading on finance management

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Financial Management

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