SME Growth Index Insight Series – Reliance on trusted advisors grew in 2020

In what has been a chaotic and confusing year, more than half the SMEs polled (53.4%) said they have relied more on their key advisor (such as their accountant or broker) since the pandemic began.

On average, these small businesses approached their key advisor 13.3 times per quarter.

This compares to 31.2% of SMEs who approached their key advisors at the same frequency as before COVID-19 struck (on average 4.4 times each quarter).

Only one in 10 ‘went their own way’ and didn’t seek out external advice, with very small cohort of SMEs (4.5%) relying less on their key advisors than they did before the pandemic.

Of those SMEs who sought advice from trusted advisors, such as their accountant, broker, bookkeeper or business specialist, eight in 10 (82.4%) reported that this external business advice had a positive impact.

The top five positive impacts that advisors had on their small business clients were:

• Reducing costs (63.4%), to help improve their bottom line
• Helping SMEs access government support and stimulus measures (36.8%)
• Providing confidence about the direction the business was taking (28.1%)
• Helping improve customer relationships (18.5%)
• Accessing funding (18.1%)

Around one in 10 SMEs used their trusted advisors for support in negotiating debt relief arrangements with the Australian Tax Office. It is notable that previous SME Growth Index findings have indicated that many small businesses are using the ATO as a “last resort lender” by not paying their debts when they fall due. It is also worth noting that a growing number of businesses are being impacted by ATO debt and the leniency that has been showed in 2020 during the pandemic will not last forever.

Around 8.6% of SME respondents said they had success in using their trusted advisors to help guide their sale of assets.

One in 10 SMEs did not seek specialist advice during the pandemic. When asked why, their most common response was they simply do not have enough time in the day (40.4% gave this response). Oher key reasons for not seeking external business advice were “not needing it” (21.3%) or “cost of advice too prohibitive” (17.6%).

Key role for advisors in 2021

SME Growth Index research in March this year found the SME sector as a whole seems reluctant to move  beyond tax and end of financial year activities when it comes to what they seek from their accountants.

A minority of SMEs were using accountants for value-add areas including funding option advice (only 46.8% of SMEs turn to their accountant for this), strategy and planning (31%), advice on selling business assets (17%), cash flow management (16.1%) and major acquisitions (14.3%).

Given the complex SME environment created by the pandemic, this may not be a wise choice for the small business sector.

For example, one of the government stimulus initiatives was to significantly expand accelerated depreciation deductions (the Instant Asset Write-off) – however some accountants have been warning SMEs not to get caught out, saying they need to fully understand the tax implications for each business before implementing such deductions.

On this and many other issues, including how SMEs should fund their business, there is a real and important role for accountants to guide their small business clients.

Accountants, brokers and bookkeepers crucial for SME funding

Accountants, brokers and book-keepers are well positioned to advise their small business clients on which funding options suit their individual business situation. In fact, March 2020 SME Growth Index research found almost five out of 10 SMEs are already using accountants to help them with funding options, and four out of 10 already use their brokers to source new finance.

Around a third of small businesses rely on their accountant’s or broker’s advice when they are making decisions about how to fund the business. It will be interesting to track whether the exceptional circumstances of 2020, along with SMEs’ flagged intentions of looking closely at the method and provider they use to fund their business, prompts more SMEs to rely on such professionals for funding guidance.

Cash flow management will be more important than ever in steering SMEs through the pandemic aftermath. A year ago, only 16% of SMEs reported using their accountant to help with cash flow management, so there is much room for improvement here.

Because it’s so important for businesses to be aware of the broad range of funding options available to them, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) partnered with ScotPac to create the Business Funding Guide (for accountants, book-keepers, brokers and other key SME advisors) and its companion FitsME Guide (for business owners). The free downloadable guide aims to help SMEs and their advisors navigate the broad range of funding options, including and beyond traditional bank products.