By Daniel Hunter

Failing to hire a finance director is preventing small business from accessing the capital required to kick-start economic growth in the UK, a survey has revealed.

This clear conclusion comes from a recent qualitative survey carried out by the finance director specialists, My Business FD. The company asked small and medium enterprises, professional advisers and financiers how important it was to have access to high-quality financial management.

The survey showed that small to medium-sized enterprises (SMEs) who had hired a finance director (FD) were much more likely to be offered finance by bankers or investors — because financiers believe that companies with an FD consistently outperform those without.

And while there is still a strong appetite among financiers to lend to SMEs they are much more rigorous about their lending and financing requirements. Financiers are often frustrated by entrepreneurs’ patchy ability to forecast their company’s finances accurately and construct a long-term business plan.

“Our survey revealed not only that financiers stress the importance of hiring an FD, but also such a hire is the key to breaking the stalemate between SMEs and the investors and unlocking access to growth capital," Trevor Overall, joint managing director at My Business FD, said.

The UK is increasingly reliant on its SME sector to re-boot economic growth. According to a report from the House of Commons Library, in 2012 there were 4.8 million businesses. The majority — 96% — were microbusinesses employing less than 10 people. There were 208,000 firms employing between 10 and 249 members of staff.

The report highlighted that although firms with more than 250 employees accounted for less than 0.1% of total businesses, they accounted for 41% of employment and 51% of turnover.

“One positive development to come out of the economic downturn has been the rapid growth in the number of start-ups in the UK. The House of Commons report, however, reinforces the findings of our survey that businesses need to grow to make meaningful contributions to the economy in terms of both turnover and employment," Overall said.

“It would be scandalous waste of talent and could cost the economy billions if these companies failed to reach their growth potential simply because they did not hire an FD.”

The survey revealed that many small businesses have a limited understanding of the benefits that an FD can bring to the company: it’s about so much more than producing the annual accounts.

Hiring an FD improves the quality of the company and allows the entrepreneur to unlock its maximum growth potential. An FD brings a level of financial rigour that improves the fiscal health of a company, making it more attractive to financiers.

There are also more holistic benefits: they act as a strategic sounding board and can help with other thorny issues such avoiding legal pitfalls and helping with human resources.

An FD also enables the business and the financier to communicate. Chris Chapman, joint managing director of My Business FD, said: “A financial director is able to accurately forecast the finances for the company. That means they can show the financier their capital will be used effectively and ensure they make a return on their investment.”

FDs also understand that the financing costs have to be borne by the company and can show the investor that the company can generate sufficient cash flow to absorb the financing costs.

Not every forecast, however, will prove to be accurate. That’s where a high-quality FD will also prove to be invaluable: they can stress-test the forecast using different scenarios to demonstrate the long-term viability of the company to the investor.

Chapman said: “Too many SMEs, particularly at the smaller end of the scale, think they have to hire a full-time FD which is unaffordable. They don’t realise they can access high- quality financial acumen through a part-time or interim FD — and that it could be the difference between success and failure for their business.”

A part-time finance director with experience of working at blue-chip companies will bring invaluable experience. They are usually sector specialists, which means they have in- depth experience and know the fastest and simplest way to solve particular problems.

Overall said: “It’s tough for small business to access capital in the current financial environment. But too many firms are needlessly failing to secure the necessary capital because they do not grasp the extraordinary benefits of hiring a part-time FD.”

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