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I read an interesting report in ITWeb this week following a survey by Xero, the cloud-based accounting software company for SMEs, of 400 South African small business owners. It shows how a lack of technology understanding and skills is costing these businesses dearly and despite more than three quarters of them being optimistic about business next year, that we’re not expecting to see things back to pre-pandemic levels until at least 2025.

Although this report is based on input from South African SMEs, I believe that SMEs in most countries around the world will recognise that they are in a similar situation and, given that 80% of the workforce here is employed by SMEs, this needs to be taken very seriously.

Some of the points that really stood out for me are:

  • 34% of the respondents said that having to choose the right technology makes them feel most vulnerable in business. In other words, they lack the confidence and/or knowledge to make the right decisions for their business. With more than 2/3rds of companies struggling to hire people with the right tech skills, this makes the situation worse.
  • Although the use of cloud technology has increased significantly over the past 4-5 years, still almost 4 in 10 of the businesses are not using it, and a third are still using spreadsheets to manage finances.
  • Cash-flow forecasting was identified as a major headache, with almost 6 in 10 saying they wished they were better at this, and almost 4 in 10 admitting to significant problems with it.
  • Of course, this is exacerbated by a problem with slow payments by customers – 91% of companies having experienced late payments, with a staggering R250 billion (almost 5% of GDP) being overdue at any point in time.

Business owners are clearly aware of these problems, and more than half identified the need to improve operations with technology as a key goal for 2022, but the question, given the points raised above, is how.

There’s no question that use of the right technology can help with improving payments, with cash-flow forecasting, with streamlining operations in general while improving reliability – in fact, eliminating what used to be a key advantage of large companies when running their business.

But, if you don’t have the knowledge or skills at hand to ensure you use the right technology, and do so correctly, you could be making a very costly mistake.

Few SMEs can afford a CIO or a CFO who is a Chartered Accountant, so how can they access the sort of financial and technical skills they need?

For financial skills, the practice of a “fractional FD” is well established in many countries, such as the UK, and becoming increasingly commonplace in South Africa. This is where a skilled, certified accountant devotes an agreed amount of time (sometimes as little as 4 hours a week) to your business, working with your financial manager/team and providing the key skills that they lack as a way to help develop them and your business overall.

On the technical side, because the workflow is more project based this approach doesn’t work so well. Typically, a business needs somebody with a good overall understanding of technology, both where it is now and where it is heading, and a solid grasp of that business to understand what type(s) of technology solutions will yield the optimum benefits. There is a need for an overall monitoring of direction and potential solutions coupled with periods of more in-depth work as things change.

One approach being increasingly used is that of appointing an independent director to the board who has the necessary technical background and understanding. Properly done, this yields a number of benefits at a cost that the business can easily afford, and which yields a significant return:

  • The independent director can quickly get up to speed on the business, its challenges and opportunities, and where the holes might lie.
  • With a solid understanding of technology and business, generally born of many years of experience leading businesses (many independent directors are from this background), a good independent director provides significant additional experience without the “blinkers” that can occur when one has spent many years progressing through a business. This objective outsider’s view can be invaluable.
  • The technology understanding and background enables the independent director to bring this expertise to the business on an as-needed basis, to provide a solid sounding board for the CEO and the in-house technical team to use when looking at how best to improve operations with technology.
  • Furthermore, overall governance improves when a board takes on one, or more, independent directors. This, in turn, typically makes the business more attractive for both finance partners (e.g. banks) and investors and often leads to lower borrowing costs. And companies that have independent directors on their boards typically outperform those without, too – an additional benefit.

The fees for independent directors are surprisingly modest, given the enormous value they can add to the business. The Institute of Directors South Africa (IoDSA) publishes an annual survey on these here, although these fees are, of course, based on the normal duties and time demands of an independent director.

In this increasingly technically-orientated business world, if you don’t have the skills yourself, appointing an independent director with a technical background could be the best move you make in 2022.

 

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