6 ways accountants can raise financial literacy standards

  Although many small businesses struggle to understand financial data, accountants are well placed to give clients the requisite tools to manage and grow their business.

For a small business owner, few things are more important than good financial literacy. 

After all, poor decisions around credit or cash flow can mean the difference between surviving and thriving – approximately half of new businesses in Australia cease to operate within four years, with financial mismanagement a common catalyst for their demise.

This is where accountancy and finance professionals can help, by working with clients to raise financial literacy standards, says Drew Fenton CPA, director at Fenton Green & Co

Here, Fenton outlines six areas where small businesses stand to benefit from further education and support.

1. Cash flow 

Without question, cash is king, Fenton says – and many businesses go bust for the lack of it, even when running a profit. 

Given that low cash flow is the leading cause of insolvency, he believes accountants can best support clients by expounding the advantages of short payment terms. 

“Even if you’ve got an asset on your balance sheet, it’s worthless unless people pay,” he says.

2. Reporting 

Fenton estimates that the majority of small business owners don’t look beyond the bottom line of their profit and loss (P&L) statement and therefore aren’t savvy to crucial points, such as non-cash expenses. 

By demystifying these and other elements of financial statements, accountants can help clients understand their financial position, which will enable them to make informed, strategic decisions about the future of their business.

3. Systems and software

To accountants pulling their hair out over clients still using spreadsheets to record financial information, Fenton says it’s time to speak up. 

“A systemised recording of process data transaction is critical to running and lifting the small business’s literacy, giving them real-time understanding of where they sit,” he says. 

“All of a sudden, they can instantly pull up their P&L, debtors and cash flow at any given time, which becomes a habit and they get a bit better at it.”

4. Succession planning

According to KPMG data, just 17 per cent of Australian family businesses have a unifying plan for leadership and ownership succession – an oversight that Fenton says can lead to “nightmarish” claims from family members upon the death of a founder. 

“Risk modelling and succession planning are very important within any business model, be it a publicly listed or private family company,” he says. 

“Encourage clients to plan where the company is going and what its one-year, five-year and 10-year future might be.”

5. Insurance 

Risk management should be part of any organisation’s DNA. To prevent clients selecting insurance based on price alone, Fenton recommends partnering them with an adviser – someone who will take the time to get to know their business and put together a level of cover that matches their risk profile. 

He adds, “A lot of companies go without, or are certainly very underinsured, and when something happens, it’s an issue.”

6. Compliance

We live in an increasingly compliant world, and when small business owners fail to understand their licensing and compliance obligations, the outcome can be costly.

“You need to spend a bit of time to make sure they are done correctly,” Fenton adds. 

To find out more about special insurance packages for CPA Australia members.

December/January 2022
Like what you're reading? Enter your email to receive the INTHEBLACK e-newsletter.

Recommended for You

Like fintech, insurtech is a broad term that can refer to both the processes and products related to insurance.

How insurtech could transform the insurance industry

A banking customer verifies her identity to check her social security fund balance using an electronic ID card, part of mobile payment app Alipay, in Hangzhou, China.

Survey: Business efficiency key driver of FinTech

Despite several funding options, funding difficulties remain a major challenge for Australian fintech start-ups, especially when it comes to seed and early stage funding.

How Australia can improve its global fintech position

December/January 2022
December/January 2022

Read the December/January issue of INTHEBLACK in digital magazine format.

Our digital magazine brings you quality content every month, in an interactive and sustainable format you can enjoy on a PC, tablet or mobile.