Most of us – when we think of business, we think of large multinational corporations – and we see businessmen as the ‘captains of industry’. The truth is really quite different. Small business accounts for almost half (48%) of private sector employment in Canada.
The situation in the US is very different. While the percentage distribution by size of firm resembles the distribution in Canada – the percentage of very small firms in the US is even larger than in Canada. The greatest difference though is in the number of very large firms – and more significantly – in the size of those firms.
In fact, large firms in the US account for about 64% of all private sector employment. Compare that with the situation in British Columbia – where small business (fewer than 50 employees) accounted for 56% of private sector employment. While small business is very important to the Canadian economy as a while, the relative importance increases as you move west from the Atlantic.
What’s more, these ‘small’ businesses are really quite a bit smaller than we’re led to believe. Fully 90% of small businesses in Canada have fewer than 10 employees – and 80% have 4 or less.
When designing accounting or bookkeeping systems for a business, it should be clear that we need to match the system to the business’ needs and to the skills and capabilities of those who are going to work with the system. At best small companies hire bookkeepers to come in once a month to record batches of transactions. They are very lucky if they actually find a skilled bookkeeper, since these are a rare commodity.
So why is it that we typically saddle these poor companies with accounting systems that are meant to be operated in real-time by skilled bookkeepers?
It just plain doesn’t make sense to inflict a fairly sophisticated accounting system on an early stage business. Anticipating what a business will look like in 5 years and creating a structure at the outset to accommodate the expected growth will almost certainly fail. That’s kind of like buying a made-to-measure suit for a 10 year old boy, and asking the tailor to measure his father to get the dimensions. There are a number of reasons why this approach will fail:
- Most of these businesses won’t exist in 5 years time
- The business may not be able to afford someone with the skills to operate a complex system
- A public accountant will charge at his or her professional rates to fix the system – if an inexperienced bookkeeper screws it up.
- The owner could spend too much time learning about – and tweaking – their bookkeeping system instead of working on the business.
- Simplicity encourages timely compliance (i.e. getting it done) – putting off doing the books is very typical of entrepreneurs
- Accounting software is cheap – but good implementations can be expensive
- It’s impossible to predict what the business will look like in 5 years.