Business Finance and the Sme Sector
Business finance and the SME sector by David Brookfield
21 Sep 2001 | | One of the most important problems accountants are likely to deal with in acting as advisors to a small or medium-sized enterprise (SME) concerns the issue of financing. More succinctly, directors and owner managers in SMEs often complain of the lack of finance for what are profitable investment opportunities. For candidates preparing for professional examinations, the problem of learning about sources of finance for small businesses is one of merely thinking of different ways of listing the available sources of finance. Of course, there is more to the problem than that although, in my experience, when directors and owner managers talk about sources of finance they do want to know what is available. Just as it is important for accountants to be able to advise on what financing is available - and I will identify some below - is the need to be able to understand and explain why the SME sector encounters difficulties in finding appropriate finance and what are the options in tackling the barriers that exist to financing. As I will argue, dealing with such barriers are natural territory for accountants acting in an advisory role and hence it is vital that aspiring professionals should understand the issues involved. Background
There is no unequivocal definition of what is meant by an SME. McLaney (2000) identifies three characteristics: 1. firms are likely to be unquoted; 2. ownership of the business is restricted to few individuals, typically a family group; and 3. they are not micro businesses that are normally regarded as those very small businesses that act as a medium for self-employment of the owners. However, this too is an important sub-group. The characteristics of SME’s can change as the business develops. Thus, for growing businesses a floatation on a market like AIM is a possibility in order to secure appropriate financing. In fact, venture capital support is usually
21 Sep 2001 | | One of the most important problems accountants are likely to deal with in acting as advisors to a small or medium-sized enterprise (SME) concerns the issue of financing. More succinctly, directors and owner managers in SMEs often complain of the lack of finance for what are profitable investment opportunities. For candidates preparing for professional examinations, the problem of learning about sources of finance for small businesses is one of merely thinking of different ways of listing the available sources of finance. Of course, there is more to the problem than that although, in my experience, when directors and owner managers talk about sources of finance they do want to know what is available. Just as it is important for accountants to be able to advise on what financing is available - and I will identify some below - is the need to be able to understand and explain why the SME sector encounters difficulties in finding appropriate finance and what are the options in tackling the barriers that exist to financing. As I will argue, dealing with such barriers are natural territory for accountants acting in an advisory role and hence it is vital that aspiring professionals should understand the issues involved. Background
There is no unequivocal definition of what is meant by an SME. McLaney (2000) identifies three characteristics: 1. firms are likely to be unquoted; 2. ownership of the business is restricted to few individuals, typically a family group; and 3. they are not micro businesses that are normally regarded as those very small businesses that act as a medium for self-employment of the owners. However, this too is an important sub-group. The characteristics of SME’s can change as the business develops. Thus, for growing businesses a floatation on a market like AIM is a possibility in order to secure appropriate financing. In fact, venture capital support is usually
References: 1. Bank of England, Quarterly Report on Small Business Statistics, Business Finance Division, Bank of England, December (1998). 2. Jarvis R, (2000), ‘Finance and the small firm’, Chapter 19, published in Enterprise and Small Business – principles, practice and policy’, S Carter and D Jones-Evans (Editors), Financial Times/Prentice Hall. 3. McLaney E J, (2000), Business Finance: Theory and Practice, Financial Times/Prentice Hall, 5th Edition. Acknowledgements Thanks are due to Professor Robin Jarvis, Kingston University, for assistance and comments in preparing this article. |