Accounting and financial planning are often neglected aspects in SMEs. Reasons for this are sometimes a lack of time, a lack of skilled people, or simply a lack of understanding of how important it is to get the numbers right. Daniella Williams, Strategic Accountant and founder of Williams Accounting & Consultancy, UAE, speaks to Tharawat magazine about the most common mistakes SMEs make in accounting, about the importance of researching and understanding the competition, and about how communication lies at the very heart of successful financial planning.

What are the most common mistakes that you see SMEs make in accounting?

I think the most crucial mistake is not hiring a qualified accountant in the first place; many business owners try to either do it themselves or end up not preparing or managing their accounts at all. Secondly, if you hire an accountant, you should hire them because of their qualifications, experience and their ability to communicate, and not because they are cheaper than all the others. It’s not about cost, it’s about value.

Another common mistake not purchasing proper accounting software and instead, just using spreadsheets. Failing to keep any records is another error; people might keep invoices but what small business owners often forget is that their incidental expenses such as coffees and mobile phone bills are also part of the business and these are often dismissed as insignificant.

Ignoring petty cash is another mistake I often observe; a lot of business owners do not keep any records and just borrow money from the business when needed for personal use. However, business finances should be monitored just like a bank account.

On a number of occasions, business owners do not take an active role in the finances of the business. Many just want to focus on what they do best which is often sales, marketing, or generally the strategy, and they neglect the financial aspects. Often this leads businesses to spending more than they can afford. This is fine as long as they consider outsourcing the accounting function to a reputable and experienced accountant.

Do you see a lot of debt in regional SMEs?

I see a lot of people making payments using their private funds. A lot of their personal wealth is wasted on their business because they are not spending it wisely. Debt is seen more often with the medium and larger businesses. In micro businesses, the very small ones with 2 to 5 people, it is the owner who takes the biggest hits. Mostly people are just not careful with how they choose to spend their business cash reserves. For example, some lease large office spaces without there being a need in the hope that their business will grow into it. This can be a costly mistake if the business does not grow as planned.

One great strategy for small businesses is to grow organically: only spend what you can afford and start small. Don’t be afraid to tell your clients that you are a one-man operation. A lot of people have a problem with that and they try to make their business look bigger than it is. In the end credibility is what matters the most.

We have seen recently that pressures are increasing on the region in terms of transparency and accountability. Are you witnessing SMEs striving for this?

Regulations are not yet developed enough for the SME market. Governments tend to allow SMEs to have a degree of flexibility with how they operate their businesses provided they are within the labour and trade license regulations. So transparency ends up being more of a corporate issue whereas small businesses will mostly address this when they are looking for investors or asking for a loan. However, with tighter lending conditions imposed by financial institutions, clear and transparent financial records are becoming increasingly necessary to borrow funds. This is also the case when applying for credit cards where transparent accounts are required and on some occasions, banks even ask for audited accounts.

From your point of view what is the greatest challenge for a strategic accountant working with an SME?

For me it is to encourage business owners to listen and acknowledge the advice given to them. Working with SMEs often means working with business owners who feel like they know best when it comes to their business and it is difficult to give them advice. It is helpful to use analogies and examples. Also it is important for the strategic accountant to read widely and to be up to date on latest literature.

With micro and small businesses, I really believe in the whole hand holding concept, which means that the strategic accountant should take the client by the hand and guide him/her through the various steps that the business requires.

Another challenge is to encourage the owner to develop a plan, to think about the future and about whether their products and services will last over time. This is very important because most businesses just think in about the present and fail to look ahead. Just because you have a niche product that will be successful today, it doesn’t mean that you are safe from competition and that others can’t duplicate you product and dilute the market. Staying ahead of competitors is important even if you think you are the only one doing what you are doing.

Small business owners also tend to have a positive and highly opportunistic attitude, which while necessary, can also be detrimental to their focus on their business strategy. Opportunities may seem very attractive the moment they come along but if business owners start responding to all of them they lose focus on their core businesses. The strategic accountant should advise business owners to think long-term rather than opportunistically.

I think that another thing that needs to be promoted with SMEs is that they should have a more thorough risk assessment and financial analysis backing up their decision-making. They need to consider the downside risk as well as the upside rewards of implementing any major decision for the business.

Strategic Accounting for SMEs
Image via GettyImages

As a strategic accountant you consider not only company internal but also external factors such as industry-wide performance and upcoming trends. Is it difficult to access industry information in the region?

It is generally very difficult to source relevant information here when compared to other regions. In the US, for example, everything is more transparent and they generally tend to be a society where sharing problems and successes is very common through blogs and websites. In the region, Google can be a great source of information as well as the main news sites on the web. Attending trade shows and conferences is another good way to find information, especially, if they are focused on a particular industry as it provides an overview on competitors and what initiatives they are adopting in the market. Understanding the competition is the most important thing of all.

I think social media provides a good research tool as well. Groups on LinkedIn and Facebook are often good indicators of the trends in industries. Nowadays, if you have a question or a problem you can post it on the net and it is very likely that someone will provide you with an answer.

What kind of a mind-set does an SME have to have in order to benefit from the collaboration with a strategic accountant? What are the ingredients to make that kind of collaboration successful?

Communication is the most important ingredient; plenty of communication. In fact, my most successful clients are the ones that I meet and communicate with regularly and follow a structured business plan. We discuss their problems and issues that they are experiencing with their business and then I listen, analyse and provide guidance on how to manage the problem. Clients tend to call me an “Ideas Accountant”, which is just another way of putting the services that a strategic accountant should offer a business.

Ideally, small businesses should invest in a strategic accountant even before starting the venture. Sometimes, strategic accountants have to be brutally honest with their clients. It is hard to tell someone that their idea is not feasible but it is better to do it at an early stage before things deteriorate further down the line. Your own business idea is something very personal. Being a strategic accountant is highly rewarding as you work with people who are passionate about what they do, and share in their business successes.

Tharawat Magazine, Issue 11, 2011