With the repercussions of the credit crunch hitting, the economy sliding into recession and titans of the financial world stumbling, small businesses are increasingly concerned about future funding.
While the UK government has mandated several bailout packages to enable banks to free up liquidity and resume lending to small firms, Britain's small businesses will still need to ensure their businesses are well positioned to weather such an unstable market climate.
Credit has never been so dear. The UK government's current bailout of the banking sector will improve liquidity, but it is yet to be seen if availability of credit will return to the levels seen in 2007. Business managers would be well advised to err on the side of caution and plan for a continuation of tough times as far as credit is concerned.
Rates on borrowing have risen and credit continues to dry up at an alarming rate. Understandably small firms are worried about securing capital and loans from financial institutions who are themselves feeling the pinch. It would be a huge understatement to say that it is a bad time to try to secure a loan.
Small businesses are particularly vulnerable when credit dries up as they are very dependent on regular cashflow. Not only do most have less capital to fall back on than larger businesses, but they are far more likely to be chasing payment from customers. Previous independent research* found that on any given day almost one third of firms with fewer than 20 employees have more than 10% of their turnover owed to them by debtors.
Smaller companies are historically more susceptible to late payment; 56% of small firms with fewer than 20 employees have debtors who are late payers versus only 29% of those with 20-50 employees. Chasing for payments is tough enough when the economic climate is benign, but in a harsh business climate many businesses will fail due to their customers' belated payments.
Competition for funding between business rivals will only get tougher too. Every small business will have to fight incredibly hard for a reduced pool of loans. In addition, they will have to fight the wider banking industry's fiscal conservatism in order to sway their bank manager or investor and secure the vital funds needed to survive, grow and prosper.
In the current environment, a keen mastery of figures and insights on the latest performance of the company is key. Unfortunately, fiscal presentation is not an area that most small business are renowned for excelling. They often don't paint themselves in the best possible light due to a shaky grasp of financial presentation, and this is often exacerbated due to lacking the right tools and knowhow.
However, hope is on the horizon. Through their software, businesses should have in place a single holistic overview allowing all business critical information to be available at all times. By having such a one-stop-shop tool, a company can quickly and easily keep control of all their figures and data. A key component within such a package should be business intelligence (BI), as it delivers incisive insights into business performance.
Small businesses can gain an advantage through BI as it can help them to better manage their business and eliminate costs. Today's cash strapped firms need the strategic insights that BI can deliver, more than ever. Many small firms have never heard of BI but it is an area that they should strongly consider if they wish to remain competitive. In a bear market only the sharp and the agile survive and competitive insights are crucial.
Firstly what is BI? First coined in 1958**, BI refers to the technologies and practice of gathering, analysing and interpreting business performance information to support better decision-making. Effective BI uncovers trends and patterns in a company's performance and provides managers with insights into what is and isn't working, so that they can be proactively tackled.
BI makes logical connections between cause and effect within a company's figures. For example, it highlights if there has been an upturn in sales attributable to marketing expenditure, or the control of stock or cash income.
Learning from corporates
Historically, BI has primarily been the domain of large
corporate companies. This has been for a number of reasons. For many, the BI
experience has been one of over-promise and under-delivery. Often BI has relied
on overly complex and asset heavy applications that are expensive to integrate
and require time and expertise to maintain.
Despite inevitable improvements in usability and price, users have had to create the queries that tell the systems what to look for. In other words formulate suppositions, test them, and do so at the right time to be of value to their business. By their nature, small businesses rarely have the resources or the ability to scale to accommodate such technology. They need solutions that are easy to use and which do not require extensive application knowledge and testing. For a small firm, a BI solution has to work quickly and smoothly.
A new breed of secure internet-based BI solution is challenging this convention. The latest packages, such as Validis, do the thinking for the user. Some newer types of BI solutions analyse companies' accounting records, automatically identifying patterns and trends in the data and any exceptions to those patterns.
Such solutions then present the results to the user with little or no configuration or manual interrogation. This enables the user to view key performance trends that inform decisions and also identify potentially costly errors or anomalies in their book-keeping data, replacing in a click time-consuming and often inadequate manual checking and analysis. This provides instant in-depth insights to non-finance management and accounting staff alike.
From a manager's perspective, data sourced through BI can give an accurate overview of strategic business performance. The latest packages allow management to monitor accounting activity independent of their accountant. This oversight capability ensures that they retain an overview of activity, remaining involved and active in the strategic decisions, and if need be intervene in the day to day decisions made by their accountant. In addition, the assessments help prevent bottlenecks when it comes to payments and cashflow. Internally, BI enables a manager to identify and talk through potential internal data management issues with staff.
BI also maximises the value of a business' accountant, increasing their efficiencies and overall cost effectiveness. Accountants can use BI to drill down into data, so in the event of any discrepancies they can quickly locate the factors behind it with a view to fixing it. BI is the best way to identify and address information pain points within any accounting process or transaction.
Empowering loan-seeking SMBs
Beyond the four walls of the business itself, BI can help a small
company display its financial figures to bank loan managers. It enables
management to identify, highlight and professionally present their business
case concisely. With up-to-date and precise information a manager is well armed
and prepared when presenting the latest figures to external investors, bank
managers or partners.
BI is easy to use and provides effective and fast business insights into outgoings and incoming earnings. Some of the newer solutions on the market are much easier to use than traditional IT applications, so much so that even a manager who doesn't have accounting experience can rapidly source and share the data only an accountant or FD would be able to show. Moreover, the latest solutions hitting the market are relatively affordable.
BI has been a hot topic among executives and managers for some time now and it's time for BI to deliver on its considerable promise. With the current economic crisis in full sway business intelligence may yet make the difference between staying afloat or going under in today's stormy climate.
Eilert Hanoa is chief executive of Mamut. For more information visit www.mamut.com
*Research by Vanson Bourne, November 2006
** The term ‘business intelligence' (BI) was first coined by HP Luhn in his October 1958 IBM Journal article, ‘A Business Intelligence System' in which he defined it as: "...the ability to apprehend the interrelationships of presented facts in such a way as to guide actions towards a desired goal."
