Solid Financial Management is Key to SME Success

Small and midsize companies often try and make do with finance systems they have outgrown, or which operate in isolation from other core business systems, according to recent research carried out by Oracle with over 5,000 SMEs across 18 countries and 10 industries. Here we look at why adequate financial accounting systems are vital to success, and why SMEs overlook them at their peril.

Thomas Chippendale, the 18th century English cabinet and chair maker, bore many of the hallmarks of the modern entrepreneur. His marketing expertise and reputation as a master craftsman brought a constant stream of rich, aristocratic clients to the door of his London studio, and his furniture designs were so advanced and so stylish that they are still in widespread use today.

But Chippendale's apparent success conceals a cautionary tale. Consumed by his quest for quality workmanship and client satisfaction, he overlooked the need for solid financial management. Despite years of sustained market demand, he never managed to make the business profitable.

Modern businesses can learn a lot from Chippendale's mistakes. It is just as true today that the best products and the best marketing in the world are of no avail if the financial side of the business is not adequately managed. Most of today's small and midsize businesses face the same age-old difficulties of controlling cashflow, justifying capital expenditure, negotiating favourable deals with suppliers, balancing quality and costs, and predicting market demand.

Regaining Financial Control

These activities are hard enough in times of stability, but in more uncertain periods the ability to exert firm financial control over all aspects of their business becomes critical. Such was the experience of Pronautic, a family-run business with 20 employees located in Barcelona, Spain. As a small wholesaler of sailing accessories and marine engines, Pronautic faced stiff competition from larger players with bigger and more flexible budgets. It needed to get better financial control of its business, not only in operational terms but also in the quality and quantity of financial information that could be made available to management to drive strategic decisions.

However, Pronautic was held back by its information systems, which were dispersed around the company, resulting in fragmented data and discrepancies between accounts and inventory control. Whenever a consolidated report was needed, it was impossible to turn around quickly, and even then the data contained in the report was often inaccurate. The company had no clear picture of its best-performing retailers, which products delivered the most profit, or which investments had realised the best return - things it urgently needed to know in order to implement the most financially-effective strategies.

To resolve the situation, Pronautic turned to local IT services provider Abast Grup, which recommended that the company consolidate all of its operational and management information systems into one suite of integrated enterprise resource planning (ERP) applications. The chosen solution was the Oracle E-Business Suite Special Edition, which offers a set of integrated modules for financial and logistics management, together with sophisticated business intelligence functionality to provide up-to-date and accurate management reports.

Following a three-month implementation, the company is now in an excellent position to manage and track its 20,000 product lines and 2,000 monthly invoices. "I now have clear visibility of my entire business," says Oscar Roig, sales director at Pronautic. "I know which products are giving me the best margin and exactly what is being sold in real time. We chose the Oracle E-Business Suite Special Edition because it meant that we would have a solution from a high-quality and respected software provider in a timeframe and at a total cost which met the needs of a family-sized company like ours."

Companies Outgrow Finance Systems Quickly

A common problem in small and midsize companies is that financial systems can quickly become inadequate. "In most companies, the financial accounting application is the first system to be installed, so it is usually the one that goes out of date first," says Anthony Peake, senior director of SME marketing for Oracle EMEA. "Small-business accounting systems are also very easy to outgrow, so many enterprises we spoke to either have a financial system that no longer supports their needs, or with multiple financial systems that can't link to each other."

The latter scenario was the problem faced by Pekarna Pecjac, a Slovenian company that has grown rapidly from a family-run concern to become the country's largest producer of frozen breads and pastries, employing 230 people. The company found itself running five or six disparate systems for financial and manufacturing management that could not adequately support its rapid growth. It needed a comprehensive system that could automate processes between business areas and provide meaningful and up to date management information.

The bakery evaluated software from a number of suppliers of ERP systems, but all but one were rejected because they did not offer the requisite level of manufacturing management functionality integrated with the core finance software.

Pekarna Pecjak selected the Oracle E-Business Suite Special Edition, which was being offered by local IT services provider OurSpace. OurSpace resolved the bakery's need for sophisticated process manufacturing functionality by incorporating Oracle Process Manufacturing into the Special Edition suite. They will implement the solution in January of the new calendar year and the resulting system will comfortably take the bakery into the next phase of its growth - expansion into neighbouring countries - and beyond.

As well as gaining full control of its financial operations, the bakery estimates that the Manufacturing functionality will eliminate bottlenecks in planning and stock control, enabling the company to get its products to market faster and at lower cost.

"Financial systems can all too easily be overlooked, especially if a company is in an exciting period of growth," says Oracle's Peake. "These stories show that solid finance systems that integrate with other business areas and can scale to grow as the company grows, are key to success in today's market."