Thriday SME Banking, Accounting & Financial Management Survey

Make no mistake, running a small business is brutal. From the business owners who wake up well before dawn to open their stores, to those that burn the midnight oil long after the kids have gone to bed. Australia’s 2.3 million SME business owners work longer hours, take less leave and suffer from more stress than the average employee. It takes courage, sweat and tears to start and run a business.

57% of respondents to the Thriday survey had a sole-trader structure, followed by companies, partnerships and trusts. Whilst cheaper and easier to set up, sole traders do not benefit from the protections afforded by limited liability; meaning they are personally responsible for the obligations of the business such as debts, tax and regulatory matters.

From our survey, 58% of business owners had no employees, 24% had 1 to 4 employees and 13% had 5 to 19 employees. This is consistent with the business size split nationwide, with ASBFEO reporting that 61% of Australian businesses are non employing. Micro businesses with 1 to 4 employees account for 27% of Australian businesses. Small businesses with 5 to 19 employees comprise 9% of Australian firms.

Our surveyed business owners were spread across a broad range of industries, with notable concentrations in Professional Services, Construction and Retail. This trend correlates with ASBFEO data that shows that these industries contribute the largest volume of small businesses to the Australian economy.

Survey respondents skewed towards an older demographic, which is in line with ASBFEO data that suggests over 60% of business owners are over the age of 45. Interestingly, data from Xero suggests that the fastest growing segment of new business owners is “Millennials”, or those individuals born between 1981 and 1996.

72% of survey respondents were expecting revenue of over $25,000 in FY19/20. According to the ABS, there are 2.3 million small businesses in Australia, of which 1.8 million have a turnover of greater than $50,000 (75.23%).  But it’s important to note that expected revenue was linked to the age of the business, with younger businesses (under 5 years of age) earning far less than more established businesses (over 10 years of age).

And the higher revenue the business has, the more likely they are to have borrowed money. 50% of businesses that borrowed money took finance from a bank. With the remainder split between alternative lenders, venture capital and family and friends.

Even though there is a broad demographic of businesses profiled in this survey, one thing is clear. Nearly all business owners start their business in order to pursue a working lifestyle that they strongly desire. It is this pursuit of being their own boss and controlling their own destiny that motivates Australian business owners to perfect their product or service, market it, hire people and ultimately create their own wealth.

Unfortunately, the key motivation to pursue independence and autonomy simply doesn’t correspond with the reality of managing their business at a day-to-day level. Business owners work longer hours and suffer from more stress than an employee would. 

One of the biggest contributors to this lack of work/life balance is the unexpected time that business owners spend on financial administration tasks that take up their day, or keep them up at night. Even though good financial management is cited by business owners as the number one factor in running a successful business, most business owners struggle to carve out the time required to do it properly.

Survey respondents were asked to rank various aspects of running their business in terms of how much they enjoyed it. Unsurprisingly, business owners dislike completing their business’ financial administration the most. The majority of business owners don’t have the time, confidence or skills required to complete their financial administration properly.

We then asked Business Owners to confirm what they found most frustrating about financial administration and the amount of time it took was the obvious pain point.

Due to the fact that starting and running a business takes a huge amount of drive and passion, it is no surprise to see that most business owners want to continue to improve how they run their operations so that they can focus on building their business. This is an important point as it shows SMEs are motivated to get more efficient in how they operate. However the propensity of older business owners to change things up was significantly less than younger business owners.

Business owners have generally leveraged their own expertise to build a successful and sustainable business. And whilst they are experts in their own product or service, they don’t have the time or inclination to become financial administration experts as well. They have enough to do managing the day-to-day operations of their business.

Unfortunately, the old adage that ‘time is money’ has never been more true when it comes to SMEs. According to the respondents in our survey respondents, SMEs are getting completely overrun by the amount of banking, accounting and tax administration required to keep their business ticking over.

Astonishingly, our survey data reveals that Australian business owners spend an average 6 hours and 19 minutes per week on financial administration, or the equivalent of 40.3 working days per year. This amount of time spent increases by a further 27% for businesses earning more than $300,000 per annum.

When we asked which tasks were taking the longest amount of time to complete each week, respondents said tax preparation, checking and reconciling transactions and sending invoices were the largest time-sucks, collectively taking almost 4 hours in total.

This time spent on repetitive financial administration tasks such as tracking receipts, paying bills, sending invoices and doing payroll take away from the time business owners could spend on acquiring new customers, building new products, optimising marketing strategies and servicing their existing customers.

Since the launch of Internet Banking and the first accounting software packages in the late 1990’s, businesses have increasingly turned to digital tools to streamline their financial activities. Many business owners recognise that digital solutions have the potential to save time, address significant pain points, and also provide insight to bolster performance.  According to research from ANZ, the most popular digital application used by small businesses is Internet Banking. This is no surprise given that business owners require a bank account to start transacting.  Even though most banks offer the same Internet Banking services to Retail and Business customers, almost 60% of businesses are paying a monthly account fee for the privilege whilst Retail customers receive a fee-free service.

According to the survey, a staggering 53% of business owners manage their finances without the aid of an accounting package such as Xero, MYOB or Quickbooks. This aligns with previous research conducted by both ANZ (47%) and ASBFEO (45%).

When asked why they chose not to use an accounting package many respondents just preferred to do it on their own, and listed Microsoft Excel as their main tool for tracking their finances.

Other key barriers to adoption included price, complexity and a steep learning curve. This highlights that the additional overhead of setting up an accounting package and the fact it’s another tool to learn is impacting take up.

Looking deeper, this presents an opportunity for banks to play a greater role in servicing frequently used administration tasks such as invoicing, reconciliation and tax planning given the high adoption levels of Internet Banking.

For the 47 per cent of businesses that are utilising an accounting package, these businesses still spend a similar amount of time on financial administration as an equivalent business that does not use an accounting package. This shows that a lot of manual intervention and self service is required with accounting packages and they do not necessarily save an SME time.

It’s not particularly surprising that business owners are spending vast amounts of time and effort completing their financial administration, but what is surprising is the amount of money some are willing to fork out to reduce that burden. Looking across the span of responses, a significant number of SMEs retain a financial professional to handle financial admin-related workload. They also pay handsomely for the privilege, with annual fees for hiring an accountant averaging at. over $1,800.

Finally, when we pitched business owners a hypothetical question: if you were given a free financial assistant to help you with your business administration, what tasks would you have them do? The responses were clustered around tax and BAS reporting, reconciling transactions and modelling cash flows.

The role of a small business owner has always been a demanding one. The dynamic nature of modern business ensures that SMEs operate in a constant flux of new competitors, emerging technologies and exciting opportunities to contend with.

In speaking to 180 Australian small businesses about their banking and accounting, we learned that business owners are sinking under the huge volume of financial administration required to keep a business operating. Our respondents reported spending an average of 6 hours and 19 minutes per week on these tasks. It’s apparent that accounting packages, accountants and bookkeepers are not completely fulfilling the needs of SMEs. Those that use these resources and tools still report spending significant time and money on managing their finances.

As the world deals with the fallout from the COVID-19 pandemic, small businesses will need to emerge more connected and more efficient with how they operate. Given this, SMEs are cognisant that they need to leverage new digital solutions that can address these significant pain points, reduce repetitive, time consuming tasks and also provide insight via a deeper understanding of their business.

This survey highlights the exciting opportunity to modernise financial admin so that the traditional walls between banking, bookkeeping, accounting and tax can be removed. In doing so, the financial management tools that leverage new capabilities such as machine learning, data science and big data can turn financial admin from a time wasting chore, into a real value-add.

A thriving SME sector is vital to the health of the Australian economy. SMEs drive growth, employment and innovation. The results from this research are clear, SME productivity is impacted significantly by the time and money spent on managing finances. We now look forward to taking these findings and integrating them into our product development process. Watch this space!