Despite operating in one of the most unpredictable economic climates in recent memory, a growing number of UK SMEs are pursuing major financial moves in the coming year, according to a recent report from strategic advisory firm K3 Advantage.
According to its findings, 41% of SMEs are more likely to consider a sale, exit or refinancing in the next 12 months compared to the previous 12 months, reflecting current market dynamics such as rising costs, supply chain disruptions and regulatory burdens.
However, despite the scale of these decisions, K3’s findings show the majority of SMEs continue to rely on fragmented or outdated financial processes. Key performance indicators are often unavailable, forecasting is often inconsistent and, in many cases, business leaders are making decisions based as much on instinct as on evidence.
“Too few business leaders think ahead and plan in advance to get the right data and specific reporting in place that’s needed to support these significant events in their journey,” said Alexander Wyndham, Managing Director of Sun Capital Group (investors in K3 Advantage).
“The impact of this is that valuations can be lower or financing is harder to come by. Business leaders must plan ahead to enhance the range of options open to them in the future.”
For accountants, this presents an opportunity to use data expertise to provide meaningful support to SMEs as they reassess their position in a volatile climate.
With the right systems and support, accountants can help clients change their approach to data from reactive to strategic, improving financial clarity, strengthening decision-making and protecting long-term business value.
A disconnect between data and insight
K3’s data reveals a gap between SME leaders’ confidence and their operational visibility.
While 79% of SME owners say they have three years of management accounts on hand, only 42% trust their financial data enough to base decisions on it. Alarmingly, 40% say their ‘gut feeling’ about business performance often contradicts what the numbers show.
“Businesses are leaving themselves open to colossal risk in believing they have all the data they need – when in reality, they’re not even close,” said Sam Phillips, Founding Managing Director of K3 Advantage.
Many of the challenges faced by SMEs in leveraging data stem from underinvestment in basic financial infrastructure. For example, 64% of SME owners surveyed by K3 do not use financial software, and 85% lack a centralised system for financial data.
“Businesses are leaving themselves open to colossal risk in believing they have all the data they need – when in reality, they’re not even close.”
Sam Phillips, Founding Managing Director, K3 Advantage
What’s more, most SMEs also lack access to the operational data needed to manage performance proactively. Only 22% have a KPI report management system, and 70% can’t produce performance reports on demand.
This lack of real-time insight means business leaders are often reacting to problems rather than proactively anticipating them.
“Improving data visibility and quality is integral to optimising business performance, and planning ahead can never start too early,” says Phillips.
How can accountants help?
Accountants servicing SMEs play a crucial role in shifting business leaders’ mindset from intuition to analysis.
By introducing or reinforcing measures like structured reporting cycles and visibility around current financial trends, accountants can help clients build trust in their financial data and leverage it more effectively in decision-making.
Another key area is accurate performance reporting. Many SMEs struggle to identify which metrics matter most to their operations. Accountants can work with clients to define relevant KPIs and implement systems that provide regular visibility over financial and operational performance.
Even if a sale or refinancing isn’t immediately on the horizon, ensuring these datasets are consistently maintained and easily retrievable can make a big difference when opportunities arise.
When an SME is preparing for a potential sale, exit or refinancing, accountants can also help them understand how to present their financial story to lenders or investors in a compelling way. This support might include reconciling discrepancies and anticipating questions that may arise during the process.
In a market defined by uncertainty, the value of a trusted advisor on matters like this cannot be overstated. The right support will not only boost efficiency, but could also influence sale terms and improve leverage in negotiations.
To thrive in this climate, SMEs need more than gut feelings. They need trusted advisors who can turn raw data into meaningful insight. For accountants, that means stepping beyond compliance and influencing the strategic decisions that shape a business’s future.
More information about the IFA’s Regional Network Meetings across the seven regions can be found here.
