Anntice Lai, Managing Director at D & Partners, and member of the Institute’s SMP Committee
While many small- and medium-sized enterprise (SME) operators often attribute their business difficulties to external factors, they frequently neglect to monitor their own financial health closely. This oversight can have serious consequences, as these enterprises typically lack adequate capital reserves. When cash flow is disrupted – whether due to delayed payments or bad debts – they risk having liquidity issues, which can ultimately lead to a breakdown in their financial structures.
To address cash flow problems, the most immediate solution for many SMEs is to seek new investments or loans. However, while SME operators excel in delivering products and services, their expertise in management and finance is often limited, which hinders their ability to effectively navigate financing options. Regardless of the financing method pursued, the importance of financial reporting cannot be overstated. Financial reports serve a dual purpose: they provide operators with timely insights into their company’s financial condition, enabling them to identify potential needs and seize opportunities, while also acting as a crucial communication tool for potential investors and lenders assessing the viability of resource allocation.
Small- and medium-sized practitioners (SMPs) possess a comprehensive understanding of the financial conditions, management practices, operational methods, and strategic approaches of these enterprises. These firms recognize that SMEs often struggle with insufficient management and financial knowledge, and that existing internal controls or financial documentation may not meet the expectations of investors or lenders. Consequently, accounting firms are well-positioned to offer tailored and practical solutions that address the specific needs of SMEs.
“By enhancing financial reporting processes, these firms can assist SMEs in gaining clearer insights into their operational performance.”
By enhancing financial reporting processes, these firms can assist SMEs in gaining clearer insights into their operational performance. This improved visibility allows operators to analyse how to optimize their business practices, restructure their organizations, and secure necessary financing to address cash flow challenges. Ultimately, these efforts are essential for SMEs to maintain ongoing operations and navigate the complex business environment effectively.
In conclusion, while seeking new investments or loans may provide temporary relief, SMEs must focus on long-term profitability improvement. Without addressing core operational issues, additional financing may merely postpone inevitable challenges rather than facilitate a true turnaround. For accountants, robust financial reporting is critical in helping SMEs assess whether to continue their business endeavours or implement changes for sustainable growth.
Paxson Fung, Partner at Citylinkers, and an Institute member
The economic landscape for SMEs in Hong Kong has become increasingly challenging. Many SMEs currently face significant hurdles, including cash flow constraints, manpower shortages, difficulties in securing financing, and navigating complex government funding schemes. These issues have been exacerbated by the ongoing impacts of the pandemic and changing market conditions, making it essential for SMEs to find effective strategies to rebound.
Many small businesses are struggling to maintain liquidity due to fluctuating revenues and rising operational costs. SMPs can provide comprehensive budgeting and forecasting services, with essential financial analyses that enable SMEs to optimize cash flow and manage expenses effectively. This proactive approach allows SMEs to navigate financial uncertainties with greater confidence. Meanwhile, the service cost will be affordable for SMEs.
Additionally, securing financing remains a significant hurdle. Accounting firms are instrumental in attracting potential investors by preparing compelling financial analyses and business cases. They help SMEs structure equity financing deals that maximize investment opportunities while minimizing ownership dilution, positioning them for future growth.
“Their agility and adaptability allow them to respond quickly to the changing needs of their clients, making them invaluable partners in recovery efforts.”
Navigating complex government funding schemes can be overwhelming, with many business owners lacking the knowledge to access available resources effectively. Many SMEs are often unaware of various funding opportunities, such as the SME Financing Guarantee Scheme, the SME Development Fund and the BUD Fund.
Accounting firms play a pivotal role in identifying suitable programmes and streamlining the application process such as providing necessary audit reports. They ensure compliance with relevant regulations, facilitating access to vital financial resources necessary for expansion and innovation.
SMPs often have established relationships with financial institutions and government bodies, which can facilitate access to funding and resources. Moreover, their agility and adaptability allow them to respond quickly to the changing needs of their clients, making them invaluable partners in recovery efforts.
To enhance their role in supporting SMEs, SMPs should consider reviewing their service offerings to align with the evolving needs of their clients. This may include expanding advisory services focused on cash flow management, workforce planning, and financing strategies. Investing in talent is also crucial – recruiting people with expertise in digital transformation can bolster the firm’s capabilities.
Frances Chan, Head of Member Engagement at the Hong Kong Institute of CPAs and an Institute member
The Chief Executive recently expressed during the Policy Address that SMEs need to strive “for self-improvement” amid “a transitional period” of the economy. To achieve this, SMEs face significant challenges in adapting to digital advancements and emerging sustainable practices.
SMPs are uniquely positioned to provide the guidance and expertise necessary for SMEs to implement effective change management strategies. By fostering strong relationships with their clients, SMPs can assess specific needs and tailor their support accordingly.
One of the first steps SMPs can take is to facilitate SMEs in understanding the importance of embracing change, developing a clear vision, and creating a roadmap for their business transformation journey. By equipping business owners with the tools and knowledge to manage change effectively, SMPs can empower them to lead their teams confidently through transitions.
“One of the first steps SMPs can take is to facilitate SMEs in understanding the importance of embracing change, developing a clear vision.”
Digital transformation is particularly crucial for SMEs aiming to bounce back and thrive in the current environment. The shift towards e-commerce and changing consumer behaviours necessitates that businesses adapt quickly to remain competitive. SMPs can assist SMEs in identifying the right digital tools and platforms to engage with customers online, streamline operations, and enhance customer experiences. For example, implementing e-commerce solutions or digital marketing strategies can help SMEs reach new markets and respond to shifts in consumer demand more effectively.
Furthermore, as consumer preferences evolve towards convenience and accessibility, SMEs must rethink their business models. SMPs can provide insights into data analytics and customer relationship management systems, enabling SMEs to tailor their offerings and marketing strategies based on consumer behaviour. This data-driven approach not only enhances customer engagement but also fosters loyalty and repeat business, which are crucial for recovery in challenging times.
Sustainability is another critical area where SMPs can provide invaluable support. As consumers increasingly demand environmentally responsible practices, SMEs must adapt to meet these expectations. SMPs can help businesses develop sustainability frameworks that integrate eco-friendly practices into their operations, such as sustainable supply chain management and energy efficiency. By positioning SMEs as responsible corporate citizens, SMPs can help them attract a growing segment of socially conscious consumers.
