Why SMEs need management accountants more than ever before

According to the CMA, research shows that owner-managers of SMEs expect, apart from routine compliance services, advice on many broad and specific aspects of their business and these include among others: 

  • financial planning,  
  • management accounting and information system,  
  • forensic accounting,  
  • cost reduction,
  • succession planning, and
  • pricing decisions 

Given that the average price per month for limited company accounts is between £40 and £250 a month, you could successfully argue that owner-managers of SMEs are expecting a lot for their money. 

However, this is reminiscent of a general truth between accountants and their clients – miscommunication and misunderstanding. 

What your clients actually want is different from what you’re offering them. 

This is understandable in many ways. The accounting sector and the companies within it have been subject to severe downward price pressure over the past decade. 

It’s become a race to the bottom. Where the only clear differentiation between accountants is price, then both you and your clients lose. 

The base of any accountancy practice’s services is founded on compliance – making sure that your clients submit their tax returns on time and that those returns are an accurate reflection of the financial transactions they reflect. 

But this should only be the base of what you offer because, if it is, there’s not much room to add value and increase prices. 

Did you know that only 1 in 25 clients believe that advice on tax (a compliance issue) is the most important thing they want from an accountant? 

Nearly two thirds want to receive support on commercial strategy, budgeting, and general business advice from their accountants. These are consultative services where you can add value to your proposition. 

As only one in five accounting clients think price is of particular importance, you should spend your time and marketing budget on finding the four in five who want the additional support identified by the CMA. 

What help do SMEs need other than compliance help?

The number of companies in the UK in almost every sector has climbed substantially in the last twenty years meaning that there’s more competition for custom than ever before. Added to that standard competition is extra competition from freelancers, contractors, and “side hustlers”. 

This, coupled with a borderline deflationary environment for the last 12 years, means that, year on year, SMEs need to sell more products at lower profit margins to maintain turnover levels. 

SMEs face constantly rising input costs – minimum wage and the knock-on effect that has on higher-paid staff, rent, rates, and supplies (especially if they are imported). 

They also face increased competition for staff at all levels meaning that they often can’t get the employees they need and they therefore have to lean heavily on support from owner-directors and senior management. 

And this is before we have factored in the effects of financial, market-based, and industry regulation. 

SMEs have to do a lot more than they did a decade ago with less cash and fewer staff and infrastructure resources. 

What is management accounting?

Running an SME without outside help is like trying to fix the brakes on a car when it is still in motion. 

Whether an owner-director is trying to realise more profit from the same level of turnover or they’re seeking to generate enough cash flow to expand their company, they need better information to work from to have the best chance of doing so. 

At the moment, owner-directors don’t have the time and, in many cases, the ability to analyse their financial records to look for clues on how they can achieve their short- and long-term commercial goals. 

Management accounting allows owner-directors to understand the impact of technology, operational structure, risk, debt, capital, profitability, cash flow, and competition on their businesses. 

Accurate, up-to-date, and comprehensive financial information and expert analysis thereof is the key to unlocking further value and growth opportunities within a business. 

The better the information and the analysis available to an owner-director and their management team, the more likely the correct decisions will be made. 

As your client’s management accountant, you’ll prepare reports about the way their business is operating to help in the making if both short-term and long-term decisions. 

These reports help a business to: 

  • identify and measure key metrics and 
  • analyse the underlying assumptions behind those key metrics with a view to changing KPIs if necessary. 

The reports you produce will aid owner-directors and senior managers to decide better whether they should: 

  • purchase another company, 
  • diversify into new geographical areas and/or new marketplaces, 
  • invest in capital equipment, 
  • continue to work with the same suppliers and more. 

The information you present will allow senior management to better predict upcoming trends, analysing purchasing costs, where revenues will come from, likely future costs, and more. 

In situations where there are multiple options for a business to invest or move forward, the work you produce will allow companies to mitigate for opportunity cost by comparing the likely rates of return on different courses of action and how soon particular projects might take to break even. 

With the analysis you provide, companies will be better placed to estimate the effect of cash flow on the business, set budgets, and project revenue growth or decline. 

Fee opportunities in this area are significant and, by diversifying your range of services to include it, your monthly direct debit clients could take your practice to break even and beyond with the lion share of much larger annual profits coming from management accounting. 

There are many similarities between the role of a management accountant and a part-time FD/NED however the analysis and the insight offered by management accounting is much greater. 

It would not be unreasonable to charge between £500 and £1,000 a day for these services and your core market should be clients whose profitability has suffered and/or whose revenues have grown constantly in recent years. 

The Hindsight app and management accounting 

If yours is an accounting firm whose revenues come mainly from compliance services paid for by direct debit, we appreciate that you and your staff will currently be very busy servicing those clients. 

While you may wish to offer management accounting services to your clients, we understand that you might not be able to see where you and your team will find the time to provide them. 

Accounting is a process-driven industry and, while online bookkeeping platforms offer many advantages to clients and accountants alike, they are not perfect.  

Clients are often slow to update them and sometimes the information they input is not of a high enough quality. 

Rather than save you much of the bookkeeping work, often they add to it as, when year end or period end is approaching, you and your colleagues must undertake significant retrospective work to bring them up to the standard required to produce and submit accurate returns. 

Over the course of 18 months, my team and I developed Hindsight, a plug-in for Xero. 

Instead of you and your colleagues having to constantly log in to each client’s Xero account and run reports, Hindsight does this every day.  

It comes pre-programmed with certain alerts letting you and your team know when you should contact the client – for example, if their clients are taking too long to pay, they haven’t reconciled their bank accounts lately, cash in the bank is low, and so on. You can even program specific alerts for individual clients which reflect potential issues of concern better. 

When an alert appears, so does additional information showing you how to explain the issue in plain English to your client and how they can resolve it. By taking this approach, work to maintain the quality of the accounts is spread evenly across the year and your client gets to know better how to use their online bookkeeping platform. 

We created Hindsight to better manage workflow within accounting practices and to free time for practices to offer a wider range of value added services to their clients. 

To find out more about Hindsight, please click here to arrange a phone call with our team. Alternatively, please click here to email us. 

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