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Risky business: manual accounting methods threaten UK GDP

Posted 6 years ago in Xero news by Gary Turner
Posted by Gary Turner

We’ve been doing our sums again – and the results make for alarming reading. We asked OnePoll to survey 500 small business (SMB) owners. And the results have revealed that, despite growing interest in Xero from the UK’s vast SMB community, over half of owners still rely on manual accounting methods. Over half of UK small businesses still use manual accounting methods In all, 26% of SMBs use spreadsheets and 25% use on paper-based records. This means that 51% of SMB owners are entirely reliant on error-prone methods for the day-to-day running of their businesses. According to the Federation of Small Businesses, British SMBs contribute half of the UK’s total GDP, currently standing at £1.5 trillion. Of course we’ll never know exactly but if the individual contributions to the UK’s GDP from small businesses were uniform, based upon the just the incidence reported in our survey, a quick calculation says that potentially up to £370 billion could be managed on spreadsheets and paper.

Experience shows that manual, paper-based working is incredibly inefficient and impairs SMB productivity. Likewise, prior studies have found that 88% of all spreadsheets also contain errors of some kind. This means billions of pounds inside the UK economy are at risk because of a failure to embrace technology, and it’s potentially limiting the UK’s ability to sustain the current economic recovery. As someone who’s always embraced technology in my personal and working life, this makes very little sense. Modern apps, smartphones and tablets are the future of business – not dusty filing cabinets and receipts in shoeboxes!

Here’s another quick calculation for you: if SMBs welcomed modern technology and abandoned manual accounting methods like spreadsheets and paper, a productivity improvement of just 5% would boost the UK economy by as much as £18 billion per annum. The enormous contribution the UK’s 4.5 million small firms make to our economy should never be understated. But to get ahead they need to move beyond Bob Cratchit-style financial processes that should have gone out with candles and paper ledgers.

By the numbers:

  • Every month more than 40,000 new companies join the ranks of Britain’s 4.5 million SMBs.
  • Despite the lack of visibility offered by spreadsheets and paper records, more than half (54%) of SMBs are worried about their cashflow.
  • Nearly one in three (31%) said generating sufficient cashflow was a major barrier to getting the business up and running in its earlier days.
  • Another 20% said having to invest or reinvest in their business had left a big impact on their cash flow.


Earl Rudolfo
September 18, 2014 at 7.20 am

Wow Gary, that’s a startling statistic about UK small businesses. Is this because of the lack of education (awareness) about the efficiencies and the benefits to be derived from switching from manual accounting methods?

Surely, most of the small businesses in the UK ( at least) have heard about Xero by now -:)

Peter Morgan
September 18, 2014 at 1.08 pm

I recall seeing a stat that awareness of cloud accounting solutions among SME’s was below 30%. It’s down to us accountants to show some leadership in this, convince clients of the benefits, and move them to a better place.

Jon Jenkins
September 19, 2014 at 4.41 am

Hi Earl

I put a lot of it down to a lack of awareness of not only SMB owners but their advisors. Xero and the other online accounting solutions are doing their bit but SMB owners have their heads down working due to the inefficiencies they have created (or up their backsides depending on which way you look at it) so it is down to the advisor to push.

A chunk of the 51% won’t even be using an advisor so unless they wake up one day and think ‘I wonder if I could do this better’ they just won’t know. We ran some free workshops last year to educate local business owners on the benefits of the ‘cloud’ and integrating Xero with CRMs etc but we were preaching to the converted. The real people who we needed, the ‘great unwashed’ did not attend because they don’t want to change. In Dorset we have a rubbish broadband infrastructure but superfast is being rolled out presently. There is a programme where business owners can get free consultancy to advise them on how to harness it and yet it is still difficult to get them to take it.

We have a thriving creative and digital industry in Dorset who you would think would embrace technology and even they seem to be hooked on using Word invoice templates.

Most older firms do not want to educate clients as they see online meaning a reduction in the fees they can charge for fixing up crap records – short sighted I know but the case. The main reason I jumped ship.

HMRC are even doing their bit but sending out emails advising SMB owners of the online choices they have.

The information is out there. You can lead a horse to water……………………

That’s me of my soap box.

Clare Almond
September 19, 2014 at 6.33 am

That is terrifying! I thought I’d made what was the last conversion from manual to software about 7 years ago and that was a struggle to make them understand. I do have one client that I go to who uses a spreadsheet her transactions really are few and I’ve made it work properly which her previous bookkeeper had not. I work part time as freelance bookkeeper and part time as an actor. I am transferring my personal accounts to Xero at the moment which should make my self assessment much quicker (and more accurate!) as I have tailored the chart of accounts to match the self assessment form. Spreadsheets can be fun!

Blair Illiano
September 23, 2014 at 7.23 pm

I do not see these exaggerated threats.

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