SME’s Ignore Business Basics At Their Peril

Posted by John Alves on September 28, 2010 under Business Planning, HR, Legal, Operations, SME News, Strategic Planning | Comments are off for this article

The future of many small businesses is in jeopardy because their managers are failing to adopt basic business practices, according to recent research.

The survey, which was conducted by Simply Business, found widespread evidence of inadequate financial management, an absence of basic business planning coupled with uninformed decision-making and totally inadequate employment policies.

29% of SME bosses admit to keeping inadequate checks on their company finances due to competing pressures on their time but the picture is likely to be worse than this, with detailed balance sheets and profit and loss forecasts only being reviewed every 18 weeks, on average. In addition, managers are failing to perform basic due diligence on customers and suppliers; 65% don’t credit check new customers, whilst 76% don’t check existing customers requesting to extend their credit terms. 30% have no formal contract at all with their business customers.

The research shows that business planning is also lacking; 54% of the businesses surveyed have no written business plan, and 68% have no detailed plans for coping with unforseen changes in the operating environment. When it comes to decision-making, 68% of those questioned say they rely primarily on gut instinct; only 56% perform any first hand market research, whilst a mere 54% consult the company accounts to inform their decision.

Finally, the survey shows that inadequate employment practises are leaving millions of SMEs exposed to the risk of costly legal action. 21% have no formal contracts for their permanent employees and 79% have no dedicated person to handle HR operations. This is reflected in the fact that 40% of firms have no formal, written HR policy while 46% have no formal health and safety policy.

Jason Stockwood, CEO of SimplyBusiness.co.uk, commented:

“Limited time and resources are characteristic of growing businesses, and the recession will have stretched UK entrepreneurs further than ever before – understandably, Location Cass Commercial Bank many have become so focused on working in the business, that their time working on the business may have suffered as a result.

“Those entrepreneurs left standing have successfully managed their firms through the credit crisis, but can not now afford to expose their companies to easily avoidable risk.”