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SMEs need better access to financial expertise

The following is a guest post by Mindaugas Mikalajunas, SME Finance CEO.

Starting a small business is hard. In the UK, only four in 10 new enterprises make it to their fifth birthday, and the EU reports a similar figure

One factor that determines success is financial know-how.

Sound financial management is one of the most essential skills for any small business founder. And yet, SMEs, especially at the micro-enterprise end of the spectrum, often lack the specialist in-house financial skills that can help them make it through. That means they are unlikely to have a fully robust grip on their financial situation. 

This knowledge gap will likely be worryingly extensive, although recent complex data is surprisingly thin.

A survey conducted by Intuit concluded that 40% of small business owners considered themselves financially illiterate.

At the same time, 81% were doing their business finances themselves. And a 2021 report by the European startup accelerator Seedcamp found that only 8% of European startup founders had gained their leadership experience in finance roles. 

Does that matter? Yes. There is a strong correlation between regular financial analysis and business success.

Annual analysis implies a success rate as low as 25%, whereas monthly or weekly interrogation of the finances brings that rate up to 75-85% and 95%, respectively.

Small businessman with boxing gloves and arms raised in victory standing near a giant fallen rival.

What are the challenges?

SME founders who lack financial experience or training face real challenges.

  • Financial management: Without a strong understanding of financial management, SME founders may struggle to manage cash flow, monitor financial performance, and make informed decisions about investments, expenses, and pricing.
  • Access to finance: Lenders and investors may be less willing to fund SMEs whose founders lack financial experience, as they may perceive these businesses as riskier investments. This can make it harder for SMEs to secure the funding to grow and expand. 
  • Choosing appropriate finance: Many – probably most – SMEs do not have the resources or expertise to navigate the various financing options available and may struggle to understand the terms and conditions of different financing products. As a result, they may end up making poor decisions or taking on debt that is not suitable for their needs. 
  • Compliance: SME founders may not be familiar with the various financial and tax regulations that apply to their business, which can put them at risk of non-compliance and potential legal and financial consequences.
  • Accounting and bookkeeping: SME founders who lack financial experience may find it challenging to maintain accurate and up-to-date financial records, leading to errors, inconsistencies, and mismanagement of finances.
  • Strategic planning: Financial expertise is also important for SME founders who want to develop effective business strategies, as financial data can provide insights into market trends, customer behavior, and overall business performance.

How SMEs can access the financial expertise they need

Lack of financial experience or training can create significant challenges for SME founders. Still, resources are available, such as online courses, mentorship programs, and professional services, to help entrepreneurs build their financial literacy and manage their finances effectively.

The easiest, most effective single step entrepreneurs can take is establishing a relationship with a supportive finance provider. Getting this decision right can play an essential role in helping startups and SMEs overcome gaps in their financial expertise. 

Traditional banks have a patchy reputation when it comes to supporting SMEs. Their focus, historically, has been on larger business customers where their small business teams can maximize profits.

More recently, there has been rapid development of so-called “fintechs,” some of which are technology-driven sources of finance for SMEs.

These SME-focused fintechs are better known than banks as sources of advice and guidance on financial matters, such as cash flow management, budgeting, and accounting. This advice can help startups and SMEs make informed decisions about their finances and improve their financial literacy.

Primary source of funding

Fintechs are now a primary source of funding for startups and SMEs. A supportive finance partner can help connect businesses with appropriate funding options, such as loans or lines of credit, and assist with the application process.

Fintech companies often offer more comprehensive lending solutions so more businesses can apply. For example, they put focus on e-shops and can offer revenue-based financing.

They may also offer flexible repayment terms for businesses with sound financial management practices. 

Fintechs also offer a range of financial products that can help businesses manage their finances more effectively.

For example, they may offer cash management services, credit cards, or payment processing solutions that can help streamline financial operations and improve cash flow.

And beyond that, they enable “embedded” finance solutions, where non-financial businesses integrate financial services into their website and apps.

Most companies with a digital presence will already be familiar with embedded payments.

Other embedded finance solutions to help businesses to attract more customers and to increase revenue include financial services such as lending, buy-now-pay-later, insurance, branded credit cards, and even embedded banking. 

Their extensive networks of business contacts can also be valuable for startups and SMEs looking to build relationships with other businesses or potential investors by providing introductions or facilitating networking events.

And some offer educational resources and training programs for businesses, which can help improve their financial literacy and build their financial management skills.

Grab all the help you can get

SMEs and startups need every advantage they can get to succeed. While many entrepreneurs may lack financial expertise, they can still thrive by tapping into training resources and the expertise of supportive specialist fintechs.

By taking advantage of advice, funding, products, networking opportunities, and education, businesses can build their financial literacy, make better financial decisions, and achieve their goals.

If you’re an SME or startup struggling with financial management, don’t let a lack of expertise hold you back. The advice you need is usually closer to hand than you imagine.  

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