The case for better management information
by David Carter on 19 January 2010
Research from the Forum of Private Business (FPB) found that 96% of the SME respondents have improved their cash position through better controls rather than looking for outside financing. Pursuing late payers (76%) heads the list, with placing tighter controls on ordering supplies (67%) next, followed by internal cost-cutting exercises (67%) and then deferring payments to HMRC under the Government's ‘time to pay' scheme (25%).
The strongest sign that the credit crisis is driving better internal financial management is that 68% of respondents said that they now produce management accounts – with 85% of these citing the reason for doing so as improving business management.
Interestingly, almost a third (31%) identified credit checks as the most effective method of monitoring their supply chain, yet few are prepared to supply their own latest financial information to outside parties. However, in an economic environment characterised by continuing credit restrictions, clear and thorough financial information is increasingly being demanded by the finance and credit industry when assessing lending risk.
Surprisingly, only 8% of respondents said that they have actively taken steps to improve their credit rating, probably reflecting the situation that the historic filed annual accounts currently show a better financial position than current trading. This is expected to change dramatically over the next six to nine months as UK businesses file 2008/9 accounts, as the then current trading is expected to show a better position. This will result in UK businesses requiring credit assessments to be based on their latest management accounts rather than the filed information.
The FPB is seeking greater collaboration between banks and businesses by calling for lending decisions to be based on realistic assessments of up-to-date risk of individual businesses. In turn, business owners must be prepared to help themselves by working more closely with lenders by providing latest detailed management accounts information.
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