CAs add value to small businesses, say funders

The logistics sector is one of these; as African economies continue to expand and improved PMI scores show resurgent buying power among SA's major trading partners: China, the EU and the US, positioning an SME logistics business to take advantage of globalisation and supply chain optimisation will remain one of the keys to growth and profitability.

Small and medium logistics operations planning to take advantage of all these opportunities are going to need financing to sustain their growth, and when it comes to keeping SMEs "borrowing fit", SAICA believes independent CAs(SA) can be invaluable. This view is backed up by many of the country's major lenders to SMEs.

"Apart from the value a chartered accountant-led practice can add to a small business through advice on financial planning and management, SAICA research has shown that an annual audit or a review carried out by a CA(SA), carries more weight with lenders," said Brigitte Kriel, SAICA's project director: small and medium practices.

Businesses that need capital for growth, capital expansion or acquisitions will find it easier to borrow that capital if they have a CA(SA) preparing their books according to these funders. SAICA commissioned an independent survey of five major banks and three specialist SME lenders, and they indicated that they found financials prepared by CAs(SA) more trustworthy than those produced by the companies themselves, or by other independent accountants, when assessing a credit application. "The letters behind the name make a big difference to us," said Scott Brown, Group Credit Risk of Investec.

Specialist SME funders, in particular, prefer an audit. "As it stands today, we prefer audited financials," said Darryl Adriaanzen, chief commercial officer of the Bank of Athens. "When the new criteria get embedded, it will still make a difference whether the review is conducted by a CA(SA) or somebody else. The independence and the quality of that information, whether it is reviewed or audited, is a significant component of the credit decision."

A key driver on so many things

Major banks, while finding CA(SA)-generated financials more credible, consider many other factors apart from annual audits when assessing credit risks. Nevertheless, they still find CA(SA) input valuable. "As a bank we have a huge interest in the survival of a small business across the country; they are a key driver on so many things," said Oscar Siziba, head of enterprise business of Absa.

"We pretty much look for a business that is well supported financially - and that starts by being mentored and being taught on how to run a business, how to treat customers, how to manage creditors, how to manage payments."

Some banks use complex scoring systems, estimating turnover and costs from the bank account, and measuring other indicators used to assess a company's ability to repay debt - and this is another area that CAs(SA) can improve a company's rating.

According to Kriel, CAs(SA) are familiar with bank criteria, so they can advise small businesses on ways to improve their financial fitness in the eyes of the banks - by providing proof of ongoing turnover and the quality of debtors, ensuring salaries are paid on the same date every month, keeping VAT and PAYE payments up to date, maintaining regular credit payments, etc. "Their input can make a major difference on the bank scoring system, when and if credit is required," she said.

The lenders also agreed that evidence of general business advice from a CA(SA) also makes an SME a more attractive credit risk. They help business owners manage the difference between cash flow and turnover, for example, and their professional relationships with lenders make them invaluable when creating a business plan that will qualify for credit. "Everybody always says funding is the biggest pain point for entrepreneurs," said Kandis Swanepoel, divisional executive business banking of Nedbank. "I think it's also the soft issues - the coaching, the mentoring, the consulting. How do I register a company? How do I create a business plan? I think those are also big pain points."

In conclusion, Kriel said that it's easy to understand why SMEs may want to use the new reporting rules as a way to cut costs - in challenging times, paring overheads to the essentials makes sound business sense. "However, looked at from a funder's perspective, the advice and expertise of a qualified CA(SA) could now be channelled into activity that will make the business more creditworthy.

In truth, the potential cost reduction of the review should be looked at as a source of funds to improve the sustainability, the financial health and cash flow of the SME." For SMEs poised to take advantage of the logistics boom, retaining a CA(SA) could be seen as an investment in "borrowing fitness".