SMEs are the lifeblood of global economies, so it is of particular concern when they struggle to thrive in difficult economic environments. The current business conditions for SMEs in many developed countries are some of the most difficult in living memory – but a new report from ACCA argues that with the help and guidance of their professional accountant advisers, SMEs can hone their strategic planning skills and embrace innovation, to become more resilient and successful.
SMEs: Business challenges and strategic innovation opportunities identifies the top concerns among SMEs in 2023: escalating costs, workforce and talent management, and the evolving ESG reporting agenda.
There is a need to build skills around creativity and problem solving
It goes on to examine a range of strategies that small businesses can adopt to help them manage these issues, and to discuss the opportunities for SMEs that can be created by addressing these and other challenges through innovation.
Based on the findings of a survey of ACCA members working in SMEs, as well as discussions with small and medium-sized accountancy practices (SMPs), the report says that inflation is the key issue raised by respondents, with 58% identifying higher costs as their most pressing concern.
‘The level of cost challenges faced by SMEs in their day-to-day operations is clear and, for many, unprecedented,’ says the report.
Last year also saw a ‘significant shift’ in the workforce landscape for SMEs, with 31% of respondents saying that job vacancies for professional workers were higher in Q1 2023 than in the same quarter of 2022. The findings align with those of ACCA’s Global Talent Trends 2023 survey.
‘It’s clear that the global economy is having some impact on the ability of small organisations to both attract and retain staff,’ says the report.
Roundtable discussions held as part of the research uncovered several themes around SME talent, including the need to upskill technical and digital skills, but also build skills around creativity and problem solving, and the increasing trend for SMEs to offer non-financial incentives (such as healthcare and childcare support) as a way of attracting and retaining talent.
The growing expectation for SMEs to provide information on sustainability comes across clearly in the report; almost half of SMEs said they had been asked to provide ESG information.
Less than 45% of SMEs receive any technical assistance in collecting ESG information
While just over 50% of those questioned said this information was accessible to them, less than 45% receive any technical assistance in collecting ESG information, and many said they were worried about the high costs of ESG reporting.
In the face of these challenges, many SMEs say they are taking strategic steps to position themselves for the future. Nearly two-thirds (64%) of those surveyed say they have introduced new business processes over the past two years.
‘All SMEs should be reflecting on further opportunities to embrace innovation to drive business growth,’ the report argues. ‘Innovation equips small businesses with the tools to adapt to shifting consumer demands and technological advancements, ensuring they stay ahead of trends.’
Most SMEs were willing to accept risk in order to innovate
But innovation comes with inherent risks and uncertainty, the report points out, which need to be managed carefully. The report identifies the two most common innovation risks as market risk and technology risk, but also found that most SMEs were willing to accept risk in order to innovate – in fact around one in four of respondents were categorised as ‘risk takers’, who are willing to accept high to very high levels of market and technology risk.
Actions for SMPs
This is where the value of SMPs as trusted advisers to smaller businesses can be felt, argues the report. ‘Building a portfolio for addressing challenges and stimulating SME growth represents a massive opportunity for SMPs,’ it says.
The report recommends a series of actions for these smaller practices:
- Focus on providing high-value strategic business services to SMEs, which will strengthen the position of SMPs as trusted advisers.
- Consider forming strategic partnerships and pooling resources with other organisations as a way of overcoming capacity constraints and to deliver enhanced services to clients.
- Lead on the sustainability agenda. As SMEs continue to embrace sustainability, SMPs can become indispensable in providing support – but they must first integrate sustainable practices into their own operational framework.
- Accelerate the adoption of digital technologies in practices and embrace digital tools and resources – an important enabler of innovation.
- Invest in talent, which could include new organisational structures to combat workforce and skills shortages, such as flexible working arrangements, automating routine tasks or cross-training employees to handle multiple roles.
The report is intended to provide guidance and further reading for both small businesses and the smaller accountancy practices that advise them.