Controlling in SMEs - 2 important reasons
Are we in control of costs? Is the return on sales good? Is our turnover increasing according to budget? Are we achieving the goals we have set and does everything still fit in with what we have set out in the business plan?
As managing director of an SME, you must ask yourself these and other important questions.
Anyone who does not want to follow this simple rule runs the risk that his/her company will become bankrupt and that this cannot be prevented early on.
Bankruptcy causes — 14 reasons
Study by the University of Mannheim. The complete study can be downloaded at the following link:
https://www.uni-mannheim.de/media/Einrichtungen/zis/Studien/414_wiko.pdf
While large companies employ their own controllers who constantly look at the company's figures, controlling in SMEs runs with limited resources. Controlling is a tool that is used to achieve the company's goals more quickly and to interpret any deviations.
Controlling distinguishes between strategic and operational controlling. Operational controlling is geared towards the short and medium term. It is primarily about recording quantifiable variables and factors, i.e. measurable in figures, which then serve as the basis for the control process.
Strategic controlling is about long-term business planning. To this end, qualitative aspects, opportunities and risks are included in the planning process.
Why is controlling worthwhile in SMEs?
For SMEs, there are actually important tools that entrepreneurs can use to make concrete plans and monitor results.
Controlling in SMEs serves to provide the necessary information for future decisions in order to set goals and formulate plans. Here, Controlling must develop a system to meet the individual requirements of SMEs. In addition to coordinating planning projects with the budget (an important requirement), controlling in SMEs also makes undesirable developments visible, which must be investigated in detail. Opportunities are also identified by controlling in SMEs in order to take them into account for future planning (scenarios). It not only determines deviations from set goals, but also draws attention to weak points. Controlling also has an advisory function and helps to better coordinate operational processes.
Controlling is therefore a comprehensive management tool for your SME!
How does controlling actually help SMEs?
As a rule, companies need controlling not only for business planning for their own corporate management. Instead, controlling provides necessary information about the company for employees, suppliers and customers, as well as for the public and for investors.
Controlling as an operational management tool
In SMEs, controlling provides owners with the necessary indicators of economic development and the financial position of their own business. This is the only way management can ensure planning and, if necessary, make corrections in good time.
How employee motivation is achieved through controlling
Especially in SMEs, personnel are the mainstay of the company. Through good controlling, they in particular find out whether and how their efforts have paid off. Controlling enables them to evaluate the use qualitatively and quantitatively and to compare it with other companies or business periods. In addition, the staff of SMEs — which is very important, especially in times of uncertainty — learn how secure their workplace is. If controlling is pleased with a positive result, the staff can experience considerable motivation, which is reflected in a loyal and sustainable working atmosphere. Controlling creates trust in your workplaces.
Deepen business relationships
Customers and suppliers, but also the authorities, can obtain a reliable overview of the continuation of the business and the relationship through intact SME controlling. For example, if suppliers receive information that results from a positive result, the supplier is assured that the SME will continue to pay its receivables reliably in the future. Customers who are aware of positive developments in SMEs can thus be assured that they can continue to provide them with services or goods deliveries in the future while offering a certain degree of flexibility.
Solid business relationships were and will always be one of the highest achievements of successful SMEs. Or do you want to work with companies that are achieving poor results and have no control over their finances?
Convincing external investors
Many SMEs depend on being able to draw on outside capital in the short term. It is therefore of great importance that SMEs can also convince banks of their economic and sustainable reliability. Controlling in SMEs provides reliable information about the financial position of a business at regular intervals. This gives external investors an insight into the development of the company and can therefore make positive decisions more quickly (all about speed) on any loan applications. As a result of the so-called Basel guidelines, which banks must comply with, banks can show that they judge borrowers not only on the basis of presented figures, but also on the quality of management. Thanks to our expertise, we have often found that SMEs with solid controlling systems have a much higher chance of getting loans than SMEs without existing controlling systems. In addition to finances, seamless controlling in SMEs also gives a positive impression of the quality and direction of company management.
Can controlling in SMEs be supported from outside?
Entrepreneurs are usually specialists in their specific field of activity and usually have neither resources nor competencies to deal with the business issues of controlling. In order for controlling to be used effectively, external and professional support is required. If support for controlling in SMEs cannot come from the company itself, such as from a professional accounting and controlling department, external help must be used.
Who provides SME with support in controlling issues?
As mentioned above, the resources and competencies of most SMEs lie in their specific areas of expertise.
Since the internal employment of professional accounting (as in other administrative areas such as IT, marketing, etc.) involves very high costs, many SMEs decide to completely outsource the financial sector (accounting and controlling) and to purchase specialist and expert knowledge in a targeted manner.
Controlling experts specialized in SMEs are therefore very suitable. Based on operational documents, the external controlling department prepares an income statement for each product or service and analyses the operational processes. This involves identifying weaknesses in operational processes and reporting on them. This report serves as a basis for future planning and for submission to equity/debt investors or authorities.
In summary — 2 reasons why controlling is so important in SMEs
- Solid business relationships were and will always be one of the highest achievements of successful SMEs.
You can achieve this by using the necessary early warning indicators so that your relationships with customers, suppliers, employees, etc. can always be maintained. - By having controlling, you create transparency and get the necessary insights into what is happening, which are of paramount importance for navigating your company.
Our senior consultants will be happy to assist you in introducing a meaningful controlling system in your SME.
Your MKY Group AG
Disclaimer: The content of this blog post is for informational purposes only and does not constitute professional advice. Each individual case should be reviewed individually and we recommend that you seek professional advice for specific questions.
