Financial carelessness is harming startup growth, finds KPMG

START-UPS are failing to see the importance in managing their financial affairs, with the majority of bosses failing to consult with a finance professional, according to a study by KPMG.

KPMG interviewed 1,000 small business owners, ranging from owner managers to managerial level directors, all of whom are running a business with two to thirty two employees, writes sister title SME Insider.

Relying on outdated information

For businesses that are less than a year old, KPMG found that they are relying on management accounts that are, on average, four months out of date.

There also seems to be minimum thinking behind important financial decisions, with the interviews revealing that many decisions such as hiring and firing, are based on gut instinct and mental arithmetic.

Over a third of startup bosses are making vital decisions based on quick calculations of available funds, with some execs simply looking at how much money is in their bank account before signing off on big decisions. Out of all the startups KPMG spoke with, none of them said that they consulted a financial professional.

‘Frightening position to be in’

“Getting a business off the ground is a bumpy ride at the best of times, but having to make decisions based on what happened four months ago when your business is barely a year old is a frightening position to be in,’ said Bivek Sharma, head of KPMG Small Business Accounting.

“Great businesses are built on great decisions, but owners really need to know where they stand today to make the right ones.”

KPMG’s research also found that more than two thirds (69%) of entrepreneurs are entirely self-taught when it comes to finances and 63% prepare their own accounts; Two thirds (63%) are neglecting to plan ahead and prepare fee or income forecasts; A quarter of startup owners admit they have no idea how much money they can safely invest in their business; A third of start-ups (31 per cent) are still concerned about financial uncertainty, despite the country’s relatively stable economic condition.

Sharma concluded: “Many start-up owner managers have fought hard for the financial skills they need to be successful. But too many are lacking the data and insights to help them make truly informed decisions.

“Combining current data and real insights with small business smarts is the key to helping these firms supercharge their growth.”