TELLING TALES: A REPORT ON NEW ZEALAND SMES & THEIR RELATIONSHIPS WITH BANKS & ACCOUNTANTS

by Martin Perry, Andrew Cardow, Claire Massey & David Tweed

New Zealand Centre for Small & Medium Enterprise Research

Massey University 2006

New Zealand Centre for SME Research Massey University Private Box 756 Wellington New Zealand Tel + 64 4 8015799 Fax +64 4 8020290 http://sme-centre.massey.ac.nz ISBN 0-9582632-8-0

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Contents

Preface .................................................................................................................................... 1

Introduction .............................................................................................................................. 3

Lifecycles & Transitions..................................................................................................... 4

SMEs & the support infrastructure .................................................................................... 4

Micro-enterprises & business excellence .......................................................................... 5

SMEs & their ‘Human Resource’ practices........................................................................ 5

SMEs, banks & accountants ............................................................................................. 5

How the research was carried out ........................................................................................... 7

Planning the research........................................................................................................ 7

The participants ................................................................................................................. 7

The interview ..................................................................................................................... 8

What the research revealed..................................................................................................... 9

Banks ................................................................................................................................ 9

Accountants..................................................................................................................... 16

Conclusions ........................................................................................................................... 21

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Preface

As university researchers our job is to uncover new knowledge – preferably the sort of new knowledge that other people will find useful. These ‘others’ may include researchers, (who can build upon our work and answer the questions that still puzzle us), or policy makers and analysts in government agencies (who might be able to use our findings to help them develop more appropriate policy frameworks). In some instances, those who read and use our research may include those who are in business themselves. These individuals are not usually the target of research publications, although they are the implicit target of everything that researchers in our field do. Not only are these individuals the centre of everything we do – they make it possible. On behalf of the whole team, I would like to express my sincere thanks to all of those who allowed us to visit them and to disrupt their day’s work. Their honest answers to our questions gave us an insight into growing a business in New Zealand and have provided us with the basis for what we hope will be a long-term project. On behalf of the project team I would also like to thank Massey University which supported the project, and to Kylie Shirtliff, Tanya Jurado and Angela Yates for their contribution to the successful completion of the research.

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Introduction

Since the 1970s, there has been increasing recognition of the importance of small and medium enterprises. Governments around the world have attempted (in different ways) to support, the firms that make up this key sector, and researchers everywhere have played their part – by developing a ‘body of knowledge’ on SMEs In recent years the SME sector in New Zealand has attracted increasing attention from policymakers and researchers alike. The establishment of a Small Business unit within the Ministry of Economic Development and the appointment of a Minister for Small Business are both indications of this increasing interest and commitment. However, despite the attention being given to SMEs, (and the increasing amount of research being undertaken on small firms in New Zealand2), there is much that is unknown about the firms that make up the sector. Previous research carried out by the New Zealand Centre for SME Research has shown that for small business owners and managers banks and accountants can be one of the most frequently turned to sources of support. But there is little understanding about the type of relationship that owners and managers of SMEs develop with the banks and accountants they deal with. The aim of this project was to provide some understanding on the nature of these relationships as they develop

1 While it is beyond the scope of this report to mention all the research on New Zealand SMEs that now exists, some key publications can be identified: the statistical overviews (Statistics New Zealand; Massey, 2005), the research into ‘world-class’ NZ firms (Campbell-Hunt et al, 2000), the various studies into ‘best business practice’ (Knuckey et al, 2002), and the work undertaken on nascent entrepreneurship in NZ (Frederick & Chittock, 2006).

Massey, C. (2005). Entrepreneurship & small business management in New Zealand. Auckland, New Zealand: Pearson Education New Zealand Ltd.

Campbell-Hunt, C., Brocklesby, J., Chetty, S., Corbett, L., Davenport, S., Jones, D., & Walsh, P. (2000). World famous in New Zealand: How New Zealand's leading firms became world-class competitors. Auckland, New Zealand: Auckland University Press.

Knuckey, S., Johnston, H., (Eds), with Campbell-Hunt, C., Carlaw, K., Corbett, L., & Massey, C. (2002). Firm foundations: A study of business practices and performance in New Zealand. Wellington, New Zealand: Ministry of Economic Development.

Frederick, H., & Chittock, G. (2006). Global entrepreneurship monitor Aotearoa New Zealand 2005. Auckland, New Zealand: UNITEC New Zealand Centre for Innovation and Entrepreneurship Research.

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for SMEs, in particular as international research evidence shows that a large number of small firms are sufficiently dissatisfied with their bank relationship to have considered switching to an alternative bank. As a result the research team identified three research objectives: 1. To explore whether owners and managers of SMEs perceived

that a long term relationship with a bank was beneficial to their business.

2. To compare SME owners and managers’ business relationships with banks and accountants.

3. To determine whether those SMEs that have switched (or thought about switching) banks have a similar tendency in relation to their accountants.

This project directly complements the findings of four other projects that have been undertaken by researchers from the New Zealand Centre for SME Research as part of the Centre’s research programme; BusinesSMEasure.

BUSINESSMEASURE In 2003 we launched BusinesSMEasure, a major strategic research project, with the support of the College of Business (through its internal research fund – the Academy of Business Research) and the University (through the Massey University Research Fund). This programme is made up of two related research components; a survey (due to be launched later in 2006) and a series of five sets of interviews with the owners of 50 firms (i.e. 250 firms in total). Together the interviews and the survey will enable the researchers to explore some of the complex issues that are facing New Zealand firms and then quantify the extent to which these issues are having an impact on the sector as a whole. All of the five reports on these projects are now complete and are available from the Centre:

Lifecycles & Transitions In 2003, the first set of 50 firms was selected and researchers visited the firms and interviewed the owners on the topic of the firm’s ‘lifecycle’. A report on this study is available from the Centre.3

SMEs & the support infrastructure In the first half of 2004, another set of 50 firms was selected and researchers visited these firms and interviewed the owners on the topic of the way in which they used the 'business support infrastructure' – i.e. their advisors and other individuals/organisations

3 Massey, C., Cameron, A., Cheyne, J., Harris, C., Lewis, K., Tweed, D., Wallace, C. & Warriner, V. (2004). Speaking up: Stories of growth in small & medium enterprises in New Zealand. Wellington, New Zealand: NZ Centre for SME Research, Massey University.

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that provide input into the direction of the firms. A report on this study is available from the Centre4.

Micro-enterprises & business excellence In the second half of 2004, a team of researchers visited a different set of 50 firms with the objective of exploring the notions of ‘best practice’ and ‘business excellence’ in New Zealand micro-enterprises. A report on this study is available from the Centre.5

SMEs & their ‘Human Resource’ practices In the first half of 2005, a team of researchers visited another different set of 50 firms with the objective of exploring the way in which SMEs deal with the issues of employing staff. A report on this study is available from the Centre.6

SMEs, banks & accountants In the second half of 2005, a team of researchers visited the final set of 50 firms with the objective of exploring the relationships that SMEs have with their banks and accountants. This is the subject of this report.

4 Lewis, K., Ashby, M., Coetzer, A., Harris, C., & Massey, C. (2005). Family, friends & government agencies: A report on SMEs & the support infrastructure project. Wellington, New Zealand: NZ Centre for SME Research, Massey University. 5 Massey, C., Auld, T., Lewis, K., Perry, M., Walker, R., & Warriner, V. (2005). Micro by name: medium by nature? A report on an investigation into business excellence & New Zealand micro-enterprises. Wellington, New Zealand: NZ Centre for SME Research, Massey University. 6 Massey, C., Lewis, K., Cameron, A., Coetzer, A., & Harris, C. (2006). It's the people that you know: A report on SMEs & their human resource practices. Wellington, New Zealand: NZ Centre for SME Research, Massey University. 8 For more details of these publications, see the Centre’s website: http://sme-centre.massey.ac.nz

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How the research was carried out

The study was carried out in 2005 by a team of researchers from the New Zealand Centre for SME Research at Massey University: Andrew Cardow, Claire Massey, Martin Perry and David Tweed. All four have considerable expertise in a range of subjects to do with small and medium enterprises, and several of the researchers have published extensively on different facets of this sector.8

PLANNING THE RESEARCH This project developed from one of the key themes that emerged from the interviews in the BusinesSMEasure project, where the comments made by a number of interviewees suggested that they have significant issues when dealing with their banks and accountants.9 This finding provided the research team with a starting point for this research. In order to devise the interview schedule and structure the research, the team also made use of the considerable international literature on this topic.10 The planning of the research followed the protocol established for the other projects in the series and is outlined below. This approach ensured a uniform process for recruiting the firms, gathering data and analysing the findings.

THE PARTICIPANTS A list of 1000 randomly-selected New Zealand firms employing fewer than 50 full-time staff was purchased from a commercial database supplier, and 50 firms from this list were recruited by telephone.11 Based on our knowledge of existing New Zealand research, and taking into account the need to limit the number of sampling dimensions, we recruited firms from two broad industry sectors (manufacturing and service industries) rather than attempting to look at firms from all industries. The firms varied in terms of age (from two years to over fifty years) but typically had been in existence between 10 and 20 years. They also varied in terms of turnover (from $130k to $7.6m) with most having a turnover from $300k to $400k. The largest firm had 22 staff while 16 had 5 or fewer staff. Twenty one were family-owned enterprises and 12 were under sole ownership. Half the sample

9 See Massey, C., Cameron, A., Cheyne, J., Harris, C., Lewis, K., Tweed, D., Wallace, C. & Warriner, V. (2004). Speaking up: Stories of growth in small & medium enterprises in New Zealand. Wellington, New Zealand: New Zealand Centre for SME Research, Massey University. 10 A review of this literature has not been included in this report as its purpose is primarily to summarise the findings of the research. 11 One firm scheduled to be interviewed withdrew from the project at the last minute. As a result the study is based on 49 face to face interviews.

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owned at least one other business and 12 engaged in some level of export activity. Finally, nine of the interviewees were women.

THE INTERVIEW Each firm was visited by a member of the research team and the owner (in a few cases the manager) was interviewed using a structured schedule, designed to help us reach our research objectives, namely:

To explore whether owners and managers of SMEs perceived that a long term relationship with a bank was good for their business.

To compare SME owners and managers’ business relationships with banks and accountants.

To determine whether those SMEs that have switched (or thought about switching) banks have also done so in relation to their accountants.

Each interview was tape recorded (if permission was given by the interviewee) and the interview transcript was sent back to this individual for approval. This approach followed the guidelines provided by the Massey University Human Ethics Committee which approved the way in which the team selected the interviewees and collected and stored the data.

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What the research revealed

The owners and managers that we visited as part of this study gave us an insight into the way in which the individuals who own and operate small and medium enterprises in New Zealand interact with banks and accountants. The interview schedule was structured in such a way to allow us not only to obtain some standardised responses but also to enable in depth discussion of particular issues. The questions dealt first with the respondents’ relationship with their bank and were followed by a parallel set of questions on their relationship with accountants. What these interviews revealed is summarised below.

BANKS This section of the interview schedule aimed to gather as much information as possible about the interviewees’ relationship with their bank (or banks). The interview covered three themes: basic factual information about the respondents’ use of banks; the type of interaction they have with their bank, and; the level of satisfaction they have with their bank or banks.

Key facts We started out by asking owners for the following key information about the way they used their bank. We asked them what they used their banks for, how long they had been with the bank they currently used and whether an account manager had been assigned to their business.

Type of use Most respondents (34) used a bank for both money management and business finance. However, a third of the sample limited their use of a bank to cash management. Seventeen interviewees operated with more than one bank.

Length of time with bank Most firms had a mix of long (over ten years) and short term relationships with their banks. However, as Table 1 shows, relationships of more than 10 years were more frequent than recently established relationships.

Table 1: How long have you dealt with your current bank? Less than 3

years 3 to 9 years 10 to 20

years 20 years or

more

No. of firms 5 16 13 15

The figures in Table 1 reflect that many of the firms interviewed had never changed the bank they use. In fact, only 5 firms in the sample had actually changed banks within the last five years. Finally, nearly half the sample (17) had relationships with more than one bank.

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Assignment of a particular person to the firm Interviewees were also asked if the bank had assigned a particular individual to deal with the business. As Table 2 sets out, most respondents (41) had an account manager assigned to their business. In nearly a quarter of cases this person had changed within the last three years. For nearly half the respondents the person they dealt with had changed at some point in their dealings with the bank.

Table 2: Assignment of account manager to firm Individual

assigned to bank

No one assigned

Change of individual in

the last 3 years

Change of individual at

any time

No. of firms 41 8 12 9

In some cases, frequent changes and lack of contact left the owner unsure whether or not the firm in question actually had a specific account manager: “Theoretically [we have an account manager] but...that’s one thing I think they’re very poor on. I wouldn’t know who to ring, we’ve got a bank manager, or an account manager, but I wouldn’t know him any better than a bar of soap” (Owner 25).

Interaction with banks Once we had gathered the basic facts about the dealings of those interviewed with their bank, we asked interviewees not only if the relationship was a personal one (i.e. dealings were with one appointed person for that firm) but a meaningful one (the advice received was relevant and useful to the particular firm). Personal vs. hands off Having established whether the firms interviewed had an account manager, we asked interviewees where and how often this contact took place: at the firm itself, face-to-face at the bank, or at another location. As Table 3 shows, in the previous 12 months most owners or managers had no direct contact with their bank account manager. Where meetings did occur, these were most likely initiated by the business manager and involved a visit to the bank.

Table 3: Meetings with account manager in the last 12 months none 1 to 3

times 4 to 7 times

more than 7 times

No. of firms with account manager visits to business

29 15 6 1

No. of firms with face-to-face meetings at bank

26 19 3 1

No. of firms who met account manager at another location

36 7 2 2

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Some respondents distinguished between their ‘official’ account manager and the bank staff they dealt with in the local branch that they utilised. Invariably these comments mentioned that personal relations with the tellers contrasted with the anonymity of their account manager. “I’d like to see a little bit more interacting, to hear from them (the account manager) occasionally” (Owner 36). We also asked owners what type of relationship they preferred with their bank. While most (38) said they preferred a personal relationship (see Table 4), just five respondents preferred a hands off relationship.

Table 4: Personal vs. hands off relationship with bank Personal

relationship Hands off No preference

No. of firms 38 5 2

Personal contact with the bank was seen as the development of ties with a known person who would gain familiarity with the owner and his or her business. As one interviewee put it: “She [their bank contact] knows who we are, what we do, what our circumstances are…she knows everything now, she knows how we work, how we’re going. I’d hate to think if we got another person what it’d be like” (Owner 25). Some respondents went beyond this and suggested that the personal relationship was needed to make the bank more aware of their industry: “[I] try and get the manager to understand road transport industry better. Need a relationship so that the bank can appreciate the particular pressures that are faced in the industry” (Owner 8). Practical advantages were also seen to flow from a personal relationship. It was thought to reduce the need for repeated explanations of their business as well as giving greater confidence that good past performance would stay in the memory of the bank. As one respondent said: “It's getting better, it's getting better every year because our companies growing and you know, we've got projects on so and we now have a track record with them so we're proving our point to them” (Owner 40). Some respondents who were longstanding customers of a bank but infrequent users of bank finance also thought their existing relationship was too impersonal. “I complained…Raising the overdraft by a small amount, you feel as though you’re dealing with a totally new person who knew nothing about your business, who was very cautious and sceptical” (Owner 25). The few (5) respondents favouring an impersonal relationship typically made little use of bank services and so were unconcerned about building a personal tie.

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Banks as a source of advice The research team then asked interviewees whether they considered the bank as a source of advice to their firm. While 13 interviewees considered their bank to be a source of advice, 33 respondents did not: “I don’t consider him [the account manager] my business advisor per se. I get my business advice elsewhere. He understands enough but he wouldn’t know and I would probably rather only tell him the good stuff too” (Owner 27). For some the bank was not a source of advice because there was no personal relationship involved. “Because their business people have never really got up close and personal with us and they haven’t really taken a big interest in us. It’s interesting when you think about it because I think we would be a good client, you know, I think if they were to look at our accounts and say, wow a lot coming in, a lot going out, but you know, by and large a profitable company” (Owner 48). Finally, some of the respondents only used the bank as a source of finance-related advice. “Not advice (in general,) only advice on financial matters. Advice on financial matters in terms of I guess borrowing” (Owner 42).

Level of satisfaction with banks We also asked interviewees to indicate their level of satisfaction with their banking relationships. Under this section respondents also answered questions about: how well the bank understands their business; whether the bank has customised its normal service to meet the firm’s needs; whether the respondent felt he or she could share business concerns with the bank; and whether the respondent had switched or considered switching banks. Table 5 shows how most respondents (38) thought the service they received from their bank was acceptable or better. “I’ve never had any problems with them anyway” (Owner 16). Of this group 15 respondents were very satisfied with their bank. “They tend to play more of a role which I think is awesome personally - to know you, to help you run the business” (Owner 38).

Table 5: How satisfied are you with the service you receive from your bank? 1

Very unsatisfied

2 3 Acceptable

4 5 Very

satisfied No. of firms

4 6 4 19 15

Bank understands firm’s needs We asked owners how well they thought the bank understood their business (see Table 6). Thirty two respondents thought the bank

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understood their business well or very well. Of this group 12 owners thought the bank understood the business well enough but could make more effort to do so. “Yes I don’t think they really appreciate what we’re doing but I think they know enough just to keep us loyal” (Owner 24). Some owners thought the bank understood the business very well. However this understanding was tended to be linked to a particular person within the bank. “Well like you said we’ve got the personal touch with her, she knows everything now, she knows how we work, how we’re going. I’d hate to think if we got another person what it’d be like” (Owner 4). On the other hand, 15 owners did not think the bank understood their business. For some respondents this was the case because they had not engaged in a relationship with the bank. “Well I haven’t engaged them on it, and they… I don’t have a lot apart from day to day, it’s pretty much all I do” (Owner 17).

Table 6: How well does the bank understand your business? 1

Not at all 2

3 Well

enough

4 5 Very well

No. of firms

9 6 12 12 10

We also asked interviewees if they had had negative experiences with the bank. Eleven respondents had been denied credit from the bank and 15 indicated that what they regarded as unreasonable conditions had been imposed by the bank in relation to a specific finance request.

Ability to share business concerns Another indicator of the type of relationship the owners interviewed had with their bank was their ability to freely share business concerns with their bank. While most respondents were able to freely share business concerns and problems with their bank, a fifth of the respondents were not (see Table 7). One owner noted that he was willing to share information with the bank because of the particular person dealing with the business. Three were not prepared to answer, or answered ‘don’t know’.

Table 7: How far do you feel that you could freely share business concerns and problems with your bank? 1

Not at all 2 3

Some 4 5

A lot No. of firms

8 3 7 10 16

“If we didn’t feel that individual had any grasp of what we’re trying to achieve as a group then we’d choose to probably not share as much” (Owner 40).

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Customised service Only two owners considered that their bank had customised their service ‘a lot’ to meet their particular business needs. More than half (27) felt there had been no customisation at all, three owners were not prepared to answer or answered ‘don’t know’ (see Table 8). “I don’t think that we get anything that someone else who has banked with them for as long as we have isn’t” (Owner 16). Table 8: To what extent has the bank customised its normal service to meet your business needs?

1 Not at all

2 3 Some

4 5 A lot

No. of firms

27 5 5 5 2

However at times this customisation was not always seen as relevant to what the firm needed and owners thought it would probably increase if there was a closer relationship with the bank. “We don’t meet with the bank that often. Yeah, they customise facilities that are available to us that we don’t really require but they certainly want to keep them in place for us so like overdraft facilities, those sorts of things, financing vehicles, those sorts of things which is all done with a minimal amount of fuss, drama” (Owner 45).

Supportive relationship Interviewees were asked if they thought their bank had made an effort to establish a supportive relationship with their business. As Table 9 shows, 8 thought there had been an effort to do so, while 6 thought no effort had been made and one was not prepared to answer or answered ‘don’t know’. Table 9: How much effort do you think that the bank has made to establish a supportive relationship with your business?

1 Not at all

2 3 Some

4 5 A lot

No. of firms

6 6 5 10 8

Typically, respondents that found that the bank had developed a supportive relationship with their business had a close relationship with their account manager. “In the beginning, really good, and since then, it hasn’t needed the follow up work, if you can understand. She did what she needed to get us sorted, and now we’re fine… I can ask her anything” (Owner 4). One respondent made a clear distinction between the bank’s effort to establish a supportive relationship with the business and the account manager’s effort. “I don’t think the bank has, but the managers have, all of them have, and the one that’s there now, he’s very good” (Owner 20).

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Ability to judge bank’s response The ability to judge how the bank will respond to a potential request is another indicator of how effective the relationship between the bank and the owner is. Uncertainty in what may or may not be supported can be viewed as a potential discouragement for making a request. Table 10 shows how most (36) respondents felt that they had at least some insight into what their bank might or might not support, five were not prepared to answer or answered ‘don’t know’.

“Well put it this way, they wouldn’t be the bank I would be going to tomorrow if they said no” (Owner 51). “We know the limits” (Owner 28). Table 10: How confident are you that you could judge your bank’s response to your need before making a request? 1

Not at all 2 3

Some 4 5

Very confident

No. of firms

7 4 5 17 14

To switch or not to switch Owners were asked if they had ever considered switching banks. Ten respondents had considered doing so, though only three had actually changed banks. Most of those who had considered changing banks had done so within the last 12 months. The two main reasons given for not switching banks were the personal relationship the owner had with their account manager and the time and effort involved in such a change (see Table 11). For one respondent who had had considerable problems with the bank, the decision not to switch was tempered by giving the account manager a second chance.

“Well, it’s not because we know him personally, it’s just because we thought we’d give him another go” (Owner 18). For other interviewees, the time and effort involved in transferring their business to another bank was not worth the trouble.

“Time and effort is a major drama and it is a major hassle” (Owner 27). Table 11: Reasons for not switching banks

Knows account manager

personally

Time and effort

Expect bank to improve

Have moved part of

business to another bank

Other

5 6 3 1 2

There was also the perception that the level of service offered by banks was the same so there was not much point in switching.

“What would we switch to? Because they’re all much the same” (Owner 30).

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ACCOUNTANTS The second half of the interview aimed to gather as much information as possible about the interviewee’s relationship with their accountant. The interview covered three themes: basic factual information about the respondents’ use of their accountant; the type of interaction they have with their accountant, and; the level of satisfaction they have with their accountant.

Key facts We started out by asking owners what they used their accountants for, how long they had been with the accountant they currently used and if a particular individual had been assigned to their business.

Type of use No respondents had more than one accountant but there were a few cases where the firm operated without an external accountant. Where an external accountant was appointed, slightly more worked with a partnership (25) than with a self employed individual (21). Typically the partnership was a locally-based firm rather than one of the major national accountancy firms.

Length of time with accountant We asked owners how long they had dealt with the accountant they currently used. As Table 12 shows, only 2 respondents had been with their accountant for less than 3 years, whereas well over half (27) had used the same accountant for 10 or more years.

Table 12: Time with accountant Less than 3

years 3-9 years 10-20 years More than 20

years

No. of firms 2 16 17 10

Individual assigned to firm Individual relationships with accountants tended to change only if the business switched accountancy provider or if the accountant retired. In some cases the senior accountant would delegate work to staff in the accountancy practice but would remain as a point of contact even when no longer involved in the day-to-day delivery of the service.

Interaction with accountants Once we had gathered the key facts about the dealings of the firms interviewed with their accountant, we asked interviewees not only if the relationship was a personal one (i.e. dealings with one appointed person for that firm) but a meaningful one (the advice received was relevant and useful to the particular firm).

Personal vs. hands off As a rule it was rare for personal interaction not to occur with the accountant, although this interaction tended to be limited to formal

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business meetings. As Table 13 sets out, 20 firms had not been visited by their accountant in the previous 12 months, while a similar number (23) had. Most (22) face-to-face contact took place one to three times a year, at the accountant’s office.

Table 13: Meetings with accountant in the last 12 months None 1 to 3

times 4 to 7 times

More than 7 times

No. of firms with accountant visits to business

20 16 7 2

No. of firms with face-to-face meetings at accountant’s office

8 22 8 7

No. of firms who met accountant at another location

34 8 1 1

Finally, there was hardly any contact at non-business locations. Where there was it was not often viewed as a significant encounter in terms of the business. “If I go out socially and meet an accountant or a lawyer or anyone like that that we deal with, it’s strictly social. I don’t believe doing business…when you’re out socially” (Owner 31).

Accountant as a source of business advice Accountants were frequently described by interviewees as being their business coach and mentor rather than just a source of narrow professional expertise. In fact, 19 respondents identified their accountant as their most important source of business advice (see Table 14). “Very much, I talk to him a lot” (Owner 22). “Extremely important” (Owner 23). A further 21 identified accountants as being of at least ‘some importance’. “Not a great deal, we do ask the odd question of them” (Owner 11).

Table 14: How important is your accountant relative to other business advisers?

Most important

Most or very

important

Second most

important

Of some importance

Not important

No. of firms

19 1 9 11 3

Level of satisfaction with accountants We also asked interviewees to indicate their level of satisfaction with the relationship they had with their accountant. As Table 15 illustrates, an overwhelming majority of the respondents felt that the service provided by their accountants was acceptable or better.

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Table 15: How satisfied are you with the service that you receive from your accountant? 1

Very unsatisfied

2 3 Accep-table

4 5 Very

satisfied No. of firms

1 3 6 9 22

Accountant understands firm’s needs Eighty percent of respondents (40) thought their accountants had made an effort to understand their business (see Table 16).

Table 16: How well does your accountant understand your business? 1

Not at all 2 3

Well enough

4 5 Very well

No. of firms

1 2 8 11 21

A significant number (21) thought their accountant had a very good understanding of the business. “Oh, very well” (Owner 19). “I wondered when we first started looking into it but boy he knows it alright” (Owner 32). For one respondent the accountant’s understanding came about because the he had taken the time to physically get to know the business. “Well, he’s seen round the farm on the bike, that helped him a lot he said, because he could put a thing on it, and then he’s seen all our paper-work over the years and years and years” (Owner 18).

Ability to share business concerns The perceived ability of the owners interviewed to share business concerns and problems with their accountant was high. As Table 17 sets out, only 2 respondents felt they couldn’t share their problems at all with their accountant, while well over half (30) felt they could do so ‘a lot’.

Table 17: How freely do you share business concerns and problems with your accountant?

1 Not at all

2 3 Some

4 5 A lot

No. of firms 2 2 2 8 30

“Oh yeah, pretty well. Because they know all the turnover, they know everything as well as we do; the financial part anyway” (Owner 16).

Customised service A measure of how well an accountant can understand a business is the degree of customisation to the particular business that has taken place (see Table 18). Although 10 respondents considered that their accountancy firm had customised their service ‘a lot’ to meet their

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particular business situation, 16 did not, four where not prepared to answer or answered ‘don’t know’. For one owner the accountant had customised his service resulting in a fee that reflected what was on offer to the firm. “Yeah he’s built his fee around” (Owner 24). But in many cases the accountant had simply implemented a generic approach to the business. “No he’s got a set of rules that he works by and I work by those” (Owner 23).

Table 18: To what extent has your accountant customised services to your business?

1 Not at all

2 3 Some

4 5 A lot

No. of firms 16 3 7 4 10

Supportive relationship As Table 19 sets out, most respondents (33) recognised that their accountant was at least making some effort to support their business. This answer was largely illustrated with examples of how the accountant would go the ‘extra mile’ for the owner. “I rang him and said listen, this is what’s happened on this form, what do I do about it? And he’s gone away this afternoon to go to…and find out how to correct it and will come back to me tomorrow with an answer. And I know he will” (Owner 47). However, one fifth of respondents did not think a supportive relationship had been established. “Well, he doesn’t really at all support me” (Owner 18). One reason for this lack of support was that there was no immediate need for it. “He doesn’t really need to, if you know what I mean. I only see him two or three times a year. If there was a problem, I’m sure we’d see them a bit more often” (Owner 16).

Table 19: Accountant’s effort to establish a supportive relationship? 1

Not at all 2 3

Some 4 5

A lot

No. of firms 2 8 6 10 17

To switch or not to switch Only 10 respondents had considered switching accountants in the previous 12 months. This interest in switching was not necessarily a consequence of dissatisfaction with an existing provider as much as the appeal of an alternative provider. As one respondent commented: “Every time I’ve asked him [the accountant] things like that he’s basically come back and said that he can’t do that because there’s a law that specifically says that this is how it is done. I suppose if you

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had a multi-million dollar business you could get a lot more creativity in your accounting” (Owner 11). Another respondent explained that switching accountant periodically was something that needs to be considered whatever your immediate satisfaction with the service offered: “I’ve been told that you should never keep the same accountant for too long because they can become too relaxed” (Owner 30).

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Conclusions

The overall purpose of the research being undertaken by the New Zealand Centre for SME Research is to contribute to understanding more about the dynamics affecting the growth of small and medium enterprises in New Zealand. In particular, the aim of the study described in this report was to understand and compare the relationship that owners and managers had with their banks and accountants. This research explored whether owners and managers of SMEs perceived that a long term relationship with a bank was beneficial to their business; compared SME owners and managers’ business relationships with banks and accountants, and; established whether those SMEs that have switched (or thought about switching) banks have a similar tendency in relation to their accountants. The research team found that:

• Most SME owners or managers in this study deal with one primary lender and are unlikely to use other financial services except for specific needs e.g. purchase of large capital items.

• Respondents had been with their banks and accountants for a similar amount of time, generally over 10 years.

• Three quarters of those interviewed favoured a personal relationship with the bank, but only one quarter viewed their bank as a source of business advice. This finding suggests that overall interviewees do not consider a longstanding relationship with their bank to be of any particular value over a short term one. The reasoning behind this was that although personal relationships could develop with individuals within a bank, these were vulnerable to changes within the organisation. In most cases the appointed person would change frequently with no continuity in the history of the bank’s relationship with the SME owner.

• Accountants were identified as the most important source of business advice of nearly half the interviewees. This suggests that the long term relationship with their accountant is very valuable to the SME owner because of the almost invariable personal nature of the relationship between them. In this relationship the individual accountant tended to remain the same throughout the longstanding relationship. The long-term retention of this accountant could result in more in depth knowledge of the SME.

• A similar number of respondents, were satisfied, very satisfied or felt the service offered by banks and accountants was acceptable (36 in the case of banks and 37 in relation to accountants)

• 30 percent of respondents did not consider their banks understood their business while 40 percent felt their accountant had a sound understanding of the business.

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• Over half of respondents report that they freely share their business concerns with their accountant while only a third do so with their bank.

• More respondents felt there had been an effort to implement a supportive relationship by their accountant than they thought their bank had done so. This result was mirrored by the perception that the bank had paid little attention to customising its services to the needs of the business. Accountants were perceived to be more flexible in their approach and more varied in terms of their accounting practices.

• A similar proportion of respondents have considered switching banks as they have accountants. This finding suggests that there is greater sensitivity to service provided by accountants than banks.

Overall, this study found many small businesses appears to be ‘switched off’ from their banks. How far this is related to the lack of growth ambition observed in many small New Zealand firms (both here and in other studies) is hard to tell although some respondents tested on this issue did seek to suggest that a more positive relationship with their bank might stimulate their interest in new investment. At the same time, the respondents reported a closer relationship with their accountant – and a willingness to take advice from this individual to a considerable degree. The potential for this relationship to be developed further is clear – and an opportunity waiting to be taken advantage of – both by the accountancy profession itself and all those interested in New Zealand SMEs fulfilling their full potential.