I found out the benefits of spending eight hours with directors from small/medium enterprises a couple of weeks ago. It was very educational to listen to the questions and the comments made in the subsequent one hour interviews with each of the directors who participated in the Directors’ Workshop that was sponsored by the Entrepreneurs’ Program of the Australian Government.
I know that not many accountants have the opportunity to spend all day and then a subsequent couple of days involved in one-on-one interviews with directors of small/medium enterprises looking at the role of a director in a small/medium enterprise business.
Therefore, I would like to share some of the key matters that were discussed.
Government grants raised a number of questions, particularly relating to skills development and the Business Growth Grant.
Financial Accounts as supplied by the directors’ company’s external accountants were only assessed as “fair”. A number of directors indicated that they do not understand their financial accounts!
Some of the directors stated that even though they have departments within their companies, their external accountants submit a consolidated Profit and Loss Account rather than individual departmentalised Profit and Loss Accounts for management to review.
Some of the directors’ companies have job costing systems but a number of directors indicated that their accountants had not shown any interest in advocating the introduction of a job costing system in their company even though they are completing work on a “job basis”.
Similar comments were made about Key Performance Indicators. No-one was participating in a benchmarking comparison either through Benchmarking.com or through a network of similar businesses around Australia. A number of the directors admitted they had never received a report including a comparison to ratios and virtually every director admitted they had no idea what is included in their bank loan agreements relative to ratios that a bank expected them to abide by.
Portfolio allocations was a keenly discussed area. Some of the directors admitted that most of the 45 portfolios we discussed, they undertook the responsibility of, because they had never seriously looked at delegating these items to other members of the management team and indeed to other team members who could start a professional development program by being made responsible for various aspects of a portfolio within an organisation.
Most of the directors expressed a desire for ongoing mentoring and coaching to help them in understanding the complexities and challenges that directors face. Indeed, a number of them indicated that they found the role of a director in a small/medium enterprise to be very lonely. Not one of the directors was utilising a Board of Advice and only one of them was involved in a Board that included some external directors.
When it came to Business Plans some of the Business Plans had been prepared three or four years ago and never updated. Some of the companies did not have a Business Plan or it was all in “the director’s head”.
Research and Development was also discussed. A number of the participants indicated that their company was undertaking research and development projects but they had no idea how to document the research and development activities. They also indicated that their accountant had never volunteered to discuss documentation of research and development with them.
Succession Planning and Exit Planning was a concept that most of them had thought about a little bit but only a couple of the directors indicated that they had gone beyond “just thinking about it”.
Many of the directors like the idea of developing a five year Vision Plan for their business because this will assist them to identify specific long term targets. The real challenge is agreeing on strategies which will assist in achieving the long term targets.
A few of the directors had appointed an external organisation to advise them on Human Resources/Fairwork Australia and Workplace Health and Safety issues but alarmingly over 50% of the directors indicated that they had no external organisation advising them on either of these major areas of responsibility for a director.
All of these directors’ companies had external accountants and only one of the directors had an internal accountant involved in their company.
When we discussed what their accountants did for them the answer was – “Taxation”. Yet when we discussed the role of a Chief Financial Officer in a public company and I indicated that in that role a CFO is directly concerned about:
- Working capital matters:
- Work in progress;
- Capital Expenditure proposals;
- “What if” questions from the CEO and other management team members;
- Monthly Performance Reports;
- Cashflow Forecasts;
- Negotiations and ongoing communications with the company’s banker;
- Risk management monitoring;
- Financial modelling exercises for proposed new projects
- Insurance Reviews;
- Safeguarding the company’s assets;
- Ensuring that the company’s policy on the Personal Property Securities Register is abided by;
- Ongoing staff development and training especially in the financial area
- And of course taxation.
The directors that were present indicated that they would like to work with an accountant who was able to supply this broader range of services which they all agreed would supply a value added service for them.
Obviously, not all accountants are going to be interested in supplying this type of service to small/medium enterprises but one of the challenges for accountants in public practice is to think about developing services that meet the requirements of your corporate clients.
These companies turnovers ranged from $750,000 to $29M, the average was probably around $4M – these are average Australian small/medium enterprises. These directors were certainly looking for a wider range of professional services from their accountants then what the majority of them are currently receiving.
ESS BIZTOOLS has a full range of products to support accountants who wish to offer a broader range of professional services i.e. business advisory services to assist in adding value to your clients.
If you would like more information on the services offered by ESS BIZTOOLS, please contact us for a discussion.