Accounting

For Small Businesses, Trust Goes Beyond the Numbers

Integrated Reporting stimulates integrated thinking across a company, ultimately resulting in more holistic business decisions that will drive better business performance.

Global trust in large businesses is waning, and recent studies show that trust is highest amongst people’s friends, neighbors, and communities – the places where small businesses thrive. In this environment, it might be assumed that small businesses are more trusted by the public than their larger counterparts. New digital tools are making it easier than ever to start and run a business and we are in an environment where investors are constantly looking for opportunities to diversify. However, small businesses still struggle to acquire loans, partnerships, suppliers, government and non-profit contracts, and investments they need to grow.

Articulating Value

To these small and medium sized enterprises (SMEs), thinking beyond the numbers is crucial to communicate their true value to current and potential stakeholders. Like big corporates with the assets and structure capable of supporting their global presence, SMEs are also capable of withstanding business and management risks. Unlike larger businesses, their loan application packages and financial reports haven’t demonstrated their robustness and credibility when meeting with angel investors and new suppliers.

In the U.S., companies, such as Tesla, Twitter, and even Amazon, grew tremendously by attracting new investor and non-investor stakeholders. As a result, they transformed the world around them even though they rarely posted a public profit in their early financial reporting. That is because these companies articulated their value far beyond the numbers. They communicated their non-financial value to stakeholders, and it worked. To get true stakeholder buy-in, companies need to be able to demonstrate and report on their non-financial value, not just their financial value.

A New Kind of Reporting

This is where integrated reporting (IR) – an approach that moves beyond the financial statements – aims to capture the full impact and value of a company comes in. IR reports on a company’s natural, human, intellectual, and social relationships, not just manufacturing or financial data.

A recent publication from the International Federation of Accountants (IFAC) and the International Integrated Reporting Council (IIRC) found that small businesses may be missing opportunities. A study on integrated reporting done by the IIRC found that 91 percent of companies that implemented an IR structure saw an impact on external engagement, and 96 percent found an impact on internal engagement by developing greater understanding of all facets of their business.

This next evolution in reporting allows companies to look beyond their short-term financial goals and produce a holistic view of their total long-term value, and then more clearly articulate their role and value to their stakeholders.

To help SMEs drive innovation, create jobs and continue economic advancement globally, IFAC in collaboration with the IIRC developed guidance to advise enterprises, no matter how small or new, on how to implement an IR structure that articulates and strengthens their value to their different audiences.

The Real Value of Small Businesses

Having a robust reporting history also helps SME’s mitigate risk, while making them more attractive to their stakeholders. Companies are now being held responsible for their social impact. Governments, non-profit organizations and private sector companies aim to act in a socially responsible manner, and therefore often seek to work with suppliers and trading partners that can demonstrate both where their business model drives results, and how their work affects people and the greater good.

Stakeholders increasingly expect business owners to articulate how their businesses invest in other forms of capital, resources, or relationships. This includes areas, such as training or support for their workforce; how they promote diversity and inclusion; how the company operates and interacts with the external environment including its relationship to technology and the risks and benefits technology brings; and how, in creating value for itself, it creates or destroys value for others, such as with environmental factors.

Giving Strength to SMEs

Robust, integrated reporting is like building credit: it serves as a blueprint of the company’s success and the good it provides, demonstrating to others that it can be relied on for partnership. Like credit, reporting that accurately describes the strength of a company’s business is crucial for small businesses looking to gain buy-in from potential stakeholders.

Small businesses are the workhorse of the global economy and are responsible for a vast improvement in quality of life globally. It is crucial that their reporting and the way that they communicate their value is clear and all encompassing, in order to help them and the world succeed.

Sylvia Tsen, executive director of the International Federation of Accountants (IFAC).