By Daniel Hunter

Many UK small to medium sized businesses (SMEs) do not understand their finances, according to the annual Credit Check report by ABN AMRO Commercial Finance.

Less than half (39%) of UK accountants believe their clients understand their finances while more than half (51%) believe SMEs do not feel in control of their financial affairs.

ABN AMRO Commercial Finance performed the research among around 200 accountants in November of this year.

Accountants believe that SMEs are struggling to understand and manage their finances.

Almost half (48%) of accountants say clients find their finances complicated and confusing while two fifths (40%) say SMEs are burying their heads in the sand when it comes to fiscal affairs.

More than half (58%) of accountants say clients do not take the time to understand their options and almost two thirds (64%) say that many of their clients do not spend enough time dedicated to financial management.

On average, accountants report that only 15% of clients proactively discuss their finances with them on a weekly basis. More than a third (41%) only do so once or twice a year.

Instead, more than half (59%) say businesses are often responding with knee-jerk, short term reactions, rather than planning ahead.

“In this difficult economic climate, many SMEs have replaced financial management with a ‘batten down the hatches’ mentality and are failing to focus on finance just when it matters the most," Peter Ewen, Managing Director at ABN AMRO Commercial Finance, said.

“Despite the challenges of the last few years, business owners cannot afford to lose control. They must look to educate themselves and plan ahead or risk being overtaken by the competition.”

Accountants also suggest that SMEs continue to use traditional bank overdrafts as a primary source of funding.

In fact, accountants say that, on average, 61% of their clients have a traditional business overdraft and more than half (52%) prefer to use their personal bank rather than shopping around.

Yet, a significant number (43%) of accountants believe their clients are using the wrong type of funding.

“Businesses must now plan for the long-term and look beyond their overdrafts at the full range of support and funding available to them," Peter Ewen added.

“In this uncertain financial climate, business owners need to take a firm hold of their finances and seek out more reliable funding, giving them a stable foundation and the confidence to make the most of the inevitable upturn.”

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