Why SMEs need management accountants

The global financial crisis of the mid-2000s and today’s progress toward recovery and economic growth highlight the need for SMEs to have expert management accounting and financial leadership

The value proposition of management accounting for SMEs is the demonstration of advanced knowledge and expertise in strategy, finance, management, operations, and technology information systems

As a key milestone of my 30-year career, I am proud to witness the importance of management accounting’s contribution to the success of small and medium-sized enterprises (SMEs) becoming even more critical. The constant pressures are increasing on SMEs to do more with less and to develop effective strategies for growth, profitability, competition, efficiency and talent management. Pressure is growing to align limited resources and tactics with those strategies so that the organisation progresses along a defined path.

Pressures demand that SMEs filter through mounds of industry, regulatory, market, competitive and financial data to have timely and relevant analysis to guide decisions, measure success and mitigate risk. These complexities are amplified by the necessity for SMEs to also manage global competition, cash flow, profitability, capital, debt, risk, operations and technology. Fortunately for SMEs, management accountants have the unique ability and expertise to positively support and contribute to SMEs strategic and financial success within each of these areas of pressure and concern more so than any other trusted source.

Evolution and trends

The foundation of management accounting is from the need for businesses to understand costs and create forecasts. The support value was more passive and aligned with business strategies that often remained unchanged. The global financial crisis of the mid-2000s and today’s progress toward recovery and economic growth highlight the need for SMEs to have expert management accounting and financial leadership. Leaders are needed to provide strategic planning, financial analysis, risk management and support for capital and credit decisions. Leaders who can help an organisation understand and be prepared to navigate through international markets and global competitive forces while adapting to our complex business and regulatory environment are critical.

Leaders are demanded who serve as cross-functional business partners collaborating to manage risk and ensure the organisation can adapt, motivate and inspire. Management accountants have the unique expertise that is being called upon with a foundation that has evolved to support an organisation with these challenges. The role leads initiatives to access and leverage the use of information technology data for decision analysis, responsibility-based accounting, and business process design for strategic and tactical opportunities. The role uses its fact-based foundation of historical data to envision the future, determine the decision paths, assess the risks and rewards and predict possible outcomes.

Also read: Do you still favour a dot-com domain over a premium brand name? For SMEs, the go-to choice is …

The role supports an organisation’s planning efforts through performance metrics and measurements and serves as a key partner and counsel for strategic decisions and direction. The results from management accounting’s role give answers to if a strategic initiative was successful; but even more importantly, the role provides a forward-looking what-if view to assess if a strategy will be successful and how to make it more successful. Management accountants today give SMEs confidence in decisions, that their strategic path is defined and on course, and that their success is intentional.

Value creation

The key question – define success. When we ask SMEs about their primary goal for being in business and how they define success, the answers commonly relate to creating some form of value. However, it isn’t always traditional financial value such as profitability or growth. Let’s step through drivers of value and understand the importance of the Varied Views of Value. Value perception varies based on the constituency groups as well as the organisation’s stage of the business lifecycle. When discussing and managing the Varied Views of Value with SMEs, I often refer to this in the context of paint colour. Each person may prefer a different paint colour. Each person has an opinion of what matters to them and what doesn’t matter to them. Sometimes we also want different paint colours in the same room, but we want those paint colours to view well together. The paint colour we like today may be different than the paint colour that we prefer tomorrow. Successful paint colour decisions drive inspiration, relationship harmony and partnership achievement. In terms of a business organisation, our challenge is to understand this scenario will be the case with each of our constituencies; customers, shareholders and employees. Each will have Varied Views of Value, of what they perceive as being important to them, and often these views will compete. Our goal is to gain insight into each group’s definition of value and then prepare strategic and financial plans that balance those values to the best of our ability. From this, we then create intelligence to understand the complexities of the plan and how best to manage risks, create a forward-looking analysis for decision paths, assess competencies required for success, and execute the plan.

As we develop strategies to define and address value creation within an SME, most common are organisational or shareholder value such as profitability, increases in stock value or earnings per share for assurance of available capital. We also often have defined customer values such as availability of services, lines of business, or quality of product or service. To manage the complexities being presented today to SMEs and to effectively plan for organisational sustainability, these traditional measurements of value are insufficient. Intangible values should also be included with at least equal importance to traditional measurements of value. These include values such as time with family, employee satisfaction, pride in the brand, having a culture of respectful relationships, and fostering an environment of innovation and creativity. These intangible measurements of value combined with the traditional financial measurements may be derived from an SME’s defined organisational core values and culture. Together they create a more balanced organisation and central focus. This produces long-term survivability instead of short-term cost cuts or pricing specials that only keep the SME operational for what often feels like a day at the time.

For example, let’s consider an SME restaurant. Its customers value fresh and pleasingly flavorful ingredients, served in a comfortable and clean environment, and delivered timely by friendly and knowledgeable employees. Notice the key components needed within the business based on these desired values. Management accounting’s expertise adds critical value to the restaurant by translating these to be in terms of forward-looking objectives and outcomes. This translation will highlight the decisions needed to reach those objectives, and what data and analysis will be needed to confidently and competently make those decisions.

Management accountant’s’ efforts will detail what is needed to implement components such as leadership, suppliers as partners, treasury processes, pricing plans, inventory management, marketing and branding, the efficiency of operational processes, people, skills, internal controls, and information systems. From this, plans and forecasts can then be made to determine the best mixture of capital or debt for funds and cash flow management, an understanding of profit margins, plan capital expenditures, as well as risk management and contingency planning. Plans will outline an environment of ethical behaviour built from respect, supporting talent recruitment and development of cross-functional operational support. A roadmap for success and measurements of performance needed to reach the restaurant’s definition of success will be created and implemented through the value of SMEs partnership with management accountant’s counsel.

SMEs partnership with management accounting

Management accountants today provide critical value to SMEs as a trusted strategic partner for:

• Strategic and financial planning efforts

• Business process efficiency initiatives

• Data analytics forecasting and decision-making and

• Development of metrics and measurements of performance success.

The value proposition of management accounting for SMEs is the demonstration of advanced knowledge and expertise in strategy, finance, management, operations, and technology information systems. Management accountants understand planning tools and frameworks for strategic planning, competitive analysis, decision analysis, risk management, regulatory and tax compliance, and business valuations for merger and acquisitions. Each of these is contributors to SMEs ability to reach its strategic goals. SMEs planning for global competitive threats and opportunities align with management accountants’ ability to support initiatives to create competitive differentials and advantages. Treasury and cash management related needs of SMEs are parallel with management accountants care expertise in cash flow strategies, monitoring financial turnover, balance sheet management, increasing the speed of payments, managing sources and uses of funds, electronic banking and systems, leveraging capital and credit facilities, and navigating the international exchange markets. Financial management, reporting, internal controls, operational efficiency and use of technology are core competencies management accountants bring to service for SMEs.

The value added from an effective partnership of SMEs and management accountants is clear and vitally important. The challenges that SMEs and the management accounting profession face today and within our future create a natural bond of opportunity that should be encouraged. The strength that comes from this relationship serves as an inspiration and a core enabler of success. These are exciting times that we will face together through this partnership. Let’s gain that confidence in our decisions and direction. Let’s set our strategic path. Let’s make our success intentional.

(Published in association with the US-based Institute of Management Accountants)

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