Small and medium businesses ‘leaking’ £2.9 billions

Mark Farrar

New research from the Association of Accounting Technicians (AAT) has discovered that more than a third of people responsible for finances in small and medium businesses (SMEs) do not have a relevant qualification* (36%). As a result of not having qualified finance staff, every SME in the UK could have lost an average of £1,277 due to issues such as tax miscalculations, unpaid invoices and fines - the equivalent of almost £2.9 billion across the UK economy. Losses include an average of:

  • £508 due to tax miscalculations
  • £399 lost due to an invoice not being issued
  • £257 for a payment bouncing

AAT is releasing the figures to highlight the ‘silent risk’ of SMEs leaking money, and encourage them to think about qualifications for their accounting and finance staff.

The research showed that in SMEs where staff have to cover a number of roles, finance and accountancy tasks are often being shared out between staff who do not have the qualifications to ensure they are done correctly. Three in five small and medium business owners (60%) are responsible for their company’s finances on a day-to-day basis, putting an extra strain on their time. Just 26% of SMEs have one or more dedicated members of staff looking after finance or accounts.

For people managing their small business’ finances, 61% have another role besides this, with half also doing business development and sales (50%) and 34% also having a role in office management, suggesting that finance is not being taken seriously enough by aspiring business owners, and is dealt with on a part-time basis.

Almost half of staff without qualifications looking after finance or accountancy roles for small businesses learned on the job (48%), with a third of business owners believing that the role isn’t complicated enough to need qualifications (32%), and a similar number (29%) saying that finance isn’t a big enough part of their role to justify a qualification. However, nearly a quarter of small business owners said that cost is a factor in their staff not having a relevant qualification, with 14% saying the business can’t afford it and one in 10 believing it’s just too expensive to train them.

The research also uncovered a gap in small businesses training their staff. Nearly one in six (15%) never spend any money on training and 26% only spend money on training ‘ad hoc’ rather than having a dedicated budget. For those with a training budget, this consists of an average £1,739 per year – dropping to just £603 for micro-businesses.

Four in 10 SMEs have experienced an employee leaving to join a bigger organisation with more training opportunities. On average, the cost of the business of losing an employee for this reason was £3,340 – often higher than the cost of providing training.

Mark Farrar, chief executive of AAT, the Association of Accounting Technicians, commented: “Running a small business always involves juggling a lot of different priorities. With so much to think about, investing in a qualified member of staff to look after finance and accounting is often seen as a big step. What’s worrying is that many business owners think that finance and accounting for their business isn’t complex enough to need a qualification, and that whoever looks after it can just learn on the job. The fact that businesses are losing money through accounting mistakes shows that this isn’t the case. Small businesses are often fragile, especially in their first few years, and every pound matters.

“Cost is perceived as a barrier to business owners when it comes to finance and accounting qualifications, but it shouldn’t have to be. Qualifications can be very flexible and cost-effective, meaning that support for small businesses is more accessible than people might think. Having qualified staff reduces the chances of losing money through issues like late-payment fines and incorrect invoices, making the business as profitable as possible.”

Lindsey Dove, who started up Berry Cocoa Handmade Candles from home and now runs her business with the help of an AAT qualification, commented: “When you’re starting a new business you need every penny you can to help you get off the ground. To think that I may have been losing money during my first months due to my own lack of understanding of how to manage my finances is quite a scary thought. I could definitely have used that money starting up! I started the business with only £200 but because I had the knowledge of budgeting and costing abilities, I have turned that small amount into a surprisingly popular and profitable business.

“Since taking up an AAT qualification I feel more confident in my abilities to manage my business’s finances and business has certainly blossomed since doing so. As a business owner you are responsible for the success of your company, so if you want to succeed you need the knowledge on how to control your finances.”

AAT short courses for business people without an accounting background start at £150. For more information visit www.aat.org.uk

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