Financing SMEs and the Role of the SME Accountant

Very recently the results of research done by the Nemacc (the knowledge centre of the Netherlands Institute of Chartered Accountants) and the Erasmus University in Rotterdam were published, looking into how the SME (small to medium sized enterprise) sector is financed and the role that the SME accountant can play.

Many micro-enterprises have been having difficulties finding finance for their business. A micro-enterprise is a company with less than 10 employees and with an annual turnover of ≤ € 2 million or with Fixed Assets with a book value of ≤ € 2 million. The reasons why their requests for finance are declined is often because they have insufficient security to offer, the owners haven’t prepared a proper business plan, or because the request for finance isn’t properly presented.

According to figures produced by the Dutch Central Bank, at the end of 2017 the banks were by far the biggest providers of external funding to non-financial Dutch enterprises. The three biggest Dutch banks had extended credit amounting to some  126 billion to the SME sector. € 13 billion of this credit was provided in amounts of less than € 250,000.

It is relatively expensive to arrange and administer credit in such small amounts, so the banks have to automate the whole credit process to keep their costs down. The result of this is that the owners of SMEs find the process of requesting finance far too time consuming and complicated so they often just forget about it.

Choosing the right type of finance has been further complicated now that other new forms of finance have been introduced since the financial crisis, with an increase in the amount of leasing and factoring that SMEs now use. New entrants to the finance market are crowdfunding, Qredits, credit unions, but also the use of crypto coins as a form of finance. All of these new forms of finance bring new parties to the market, and this doesn’t make it any easier for the SME entrepreneur when making choices and it can all get rather confusing.

In general, SME entrepreneurs are very happy with their accountants when it comes to putting together their Annual Report and Accounts. But these days entrepreneurs expect more of their accountant and the accountant’s role is changing. As well as the regular tasks that they do, such as preparing the accounts, SME owners now expect their accountants to take on a more pro-active role, providing advice and other such services. They could pay more attention to the company’s business model: market related factors (analysing the market and competition), the quality of the management, debtor and creditor policy, liquidity, financial targets and forms of financing, optimisation of the finance structure and the profitability of the company.

Outsiders with a third party interest in the SME, and the company’s financiers also feel that the SME accountants are currently far too defensive in the way they do their work: the SME accountant doesn’t pay enough attention to the way the company is run and the future earning potential of the enterprise. Financiers also think that SME accountants play down their role and the value they can add by not seizing the chance to take on a more advisory role.

The conclusion of this research is that accountants in the SME sector could offer a lot more help than they currently do and they could make a difference, but they don’t yet dare to take on this role of financial expert.

One important point is that current regulations do not hinder the SME accountant from taking on the tasks that are related to a more supportive role when an SME is looking for finance, so that is not an issue. But what an SME accountant does lack is time, and also specific knowledge in the field of the different forms of financing.

Providing SME accountants with specific extra education about how to finance business would certainly fill this gap in the market and would create a win-win situation for both the entrepreneur and the SME accountant, the SME accountant and the finance providers.

Providing SMEs with the right type of finance is also high on Togather’s list of priorities! That is why, from May onwards, Togather is starting a training program for (SME) accountants so that they can optimize their specific skills and knowledge in the field of company finance.

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