Britain’s 5.3^[2] million strong army of sole traders and micro businesses estimate they’re spending the equivalent of 2.5 million working days collectively each month on managing their finances, a figure which could be a serious underestimation according to KashFlow.

KashFlow commissioned a study among sole traders and owners of businesses with less than ten employees, to get a better understanding of the pressures they feel when it comes to things like balancing their books, managing cashflow and doing their annual tax return. The study uncovered some surprising findings. Despite almost a third (32%) admitting that managing their finances leaves them feeling stressed, only 6% rated their finance management abilities as ‘not good’ – with 87% rating themselves either ‘really good’ or ‘not bad’ at doing things like keeping on top of cashflow, managing payments and staying compliant.

As part of the study, KashFlow considered the list of jobs that are part of financial management for sole traders and micro businesses, all of which they say they’re currently fitting into less than half a day a month. These include:

• Creating and issuing invoices to customers
• Chasing late payments
• Recording all income and expenditure
• Reviewing corporation tax liability to ensure money is put aside
• Reviewing payments to owners and directors (including shareholders)
• Paying staff salaries
• Paying suppliers (including rent) and ensuring they’re not paid twice
• Managing expenses (paying staff and ensuring expenses are billed to customers)
• Managing staff pensions
• Reviewing prices against competitors to ensure the company is competitive
• Costing new jobs and creating quotes (or prices and estimates) based on time it will take to do the job and/or supplier costs
• Profit forecasting - Ensuring that the company will make a profit in the short and long term and making adjustments to the business where there is a discrepancy
• Cashflow forecasting – Ensuring that the company can pay invoices when they full due
• Reviewing investment for growth opportunities and calculating the opportunities and risks
• Regularly reviewing supplier costs to ensure value for money
• Reviewing capital investment needs and funding

As a business management tool, KashFlow makes all these tasks quicker and easier, with the exception of competitor price analysis and reviewing supplier costs.

Oliver Shaw, CEO of KashFlow said of the findings: “It’s really encouraging to see that many of those we surveyed feel confident and in control when it comes to their business finances, especially as we know it’s not their favourite thing to do. However, the figures suggest that many could be underestimating how long they actually spend each month, or perhaps overlooking important finance management tasks which will help them stay in better control of their business in the long term. We know that they would far rather be earning money doing what they love than staring at a spreadsheet. It’s one of the reasons why software like ours exists; to make the time intensive and tricky things easier for people.”

KashFlow say the impact of non- compliance on small firms and sole traders should not be underestimated, with penalties being enforced for late payment and filing, or mistakes with a broad range of things including tax returns, statutory accounts to Companies House, PAYE, P11D and National Insurance. These can have serious consequences for micro businesses, a sentiment echoed by Roy Maugham, Tax Partner at UHY Hacker Young who recently said, “There is increasing pressure on small and mid-sized businesses to spend their time and money on systems to ensure that tax affairs are accurate and up to date. Without adequate care, small businesses are at risk of being pulled up over minor mistakes or small disparities, which could incur disproportionately heavy fines and penalties.”

Oliver Shaw concluded: “Sole traders and micro businesses make a huge contribution to our economy, and our research shows they’re a really passionate and motivated group, who love being their own boss. Staying on top of their finances is vital for them to be compliant and ultimately, stay afloat, so they should consider tools that allow them to do it in a smarter and more efficient way.”

(Source: KashFlow)

[2] https://www.gov.uk/government/statistics/business-population-estimates-2016

While self-employment has risen noticeably slower than paid-employment since the beginning of the decade, Canadian small- and medium-sized enterprises (SMEs) have been creating a more significant share of jobs since 2010, finds a new report by CIBC Capital Markets.

Between 2010 and 2016, 42% of new jobs were created by businesses with less than 100 employees, up from 30% between 2000 and 2010.

"Beyond the threshold of five employees, there is a clear positive correlation between size and growth, with larger firms within the SME spectrum seeing progressively stronger growth recently," says Benjamin Tal, Deputy Chief Economist, CIBC, who co-authored the report, Canadian SMEs: Strength Beneath the Surface, with Senior Economist Royce Mendes.

"What's more, the share of larger SMEs has risen to a level not seen in almost a decade," Mr. Tal says, noting the trend is particularly strong west of Quebec. "Each province from Ontario to B.C. has exhibited a growth rate of more than nine% in the number of companies with employees."

In 2016, more than 350,000 businesses were created and just under 300,000 exited, with the entry rate (the ratio of business creation to total businesses) on the decline since 2004 while the exit rate has been more stable, despite the impact of the fall in oil prices a couple of years ago.

"Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock," Mr. Tal says. "With the Canadian economy in recovery mode, the environment for small businesses remains constructive."

And while the World Bank ranks Canada as one of the best places to start a new business due to access to capital and a favourable tax regime, the report highlights several gaps, including access to financing for certain business.

"From companies with high growth rates to those with young owners, some SMEs do face more acute issues finding financing," Mr. Tal says.

The report also highlights that women remain an untapped resource in the SME space.

"Female participation in the workforce has made significant progress over the past few decades, but entrepreneurship remains an area that could see improvement," Mr. Tal says. "Female majority ownership in the SME space represents less than 20% of all businesses, and recent progress has been slow in coming."

Another gap is youth entrepreneurship. Canadians between the ages of 25 and 39 comprise more than 25% of the population, yet represent less than 15% of small business owners and less than 10% of medium-sized business owners.

Canadians aged 50 to 64 years, by comparison, also represent about 25% of the population but this group represents 47% of small business owners and 51% of medium business owners.

"One reason for this discrepancy could be related to their access to financing. Remember that companies with younger owners face much more difficulty when trying to externally fund their business," Mr. Tal says. "It will be important to watch this segment of the population as Canada tries to compete with other countries in the tech landscape, which is more tilted toward younger business owners than other industries."

Canadian SMEs have also been slow to expand revenue sources outside of Canada and North America.

"SME revenue continues to be geographically concentrated in North America, creating risk," Mr. Tal says. "Currently only 10% of SMEs are involved in any sort of exporting at all, and roughly 90% of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market."

The report notes that there is room to increase the ratio of Canadian goods and services being exported to Asia and Latin America.

"The age of digital connection has made it much easier to send Canada's high-end service exports all over the world, something many SMEs could benefit from," Mr. Tal says.

(Source: CIBC)

London hosted the 37th London Marathon on its streets this month, the day of reckoning when thousands of first-time Marathon runners finally put their months of training to the test to attain a life-long dream. Here Gary Turner, UK MD and co-founder at Xero explains to Finance Monthly why starting up a small business is more of a marathon than a fun-run.

While not everyone chooses to run one, there are some striking similarities between the process of preparing for the race and getting a small business up and running. ‘It’s a marathon, not a sprint’ is a bit of a cliché, but the premise is correct - success means careful planning, a lot of time, consistent effort and discipline, and patience when the odds feel like they are stacked against you. Although I’m not a Marathon runner myself, I’ve watched others train hard for them, and the gruelling work, the exhaustion and the sheer joy of success are exactly why the two processes are so similar.

Here’s five ways how entrepreneurs and marathon runners can learn from each other:

1. Be clear about your goal

By signing up to the Marathon, runners commit themselves to the undertaking. Visualising success is a huge part of the mental preparation, and it is exactly the same for a small business owner - have a distinct aim that will help to keep you focused.

2. Plan how you’re going to get there

Marathon runners have a clear training plan from the moment they start, covering everything from distances to pace times - and the rest days in between. Once you have a business goal, create a detailed plan to get there, setting benchmarks and smaller aims along the way to highlight progress and keep motivated.

3. Know when to give yourself a break

Days off are vital to give your muscles a break and they are equally as important when running a business. Our recent research found that successful small business owners make sure they are taking breaks to give time for their batteries to recharge - in fact, our research found that more than half of small business owners (52%) admit they want to give themselves more time of fin 2017 than they did last year to prevent burning out. Looking after yourself means you can be at the top of your game.

4. Prepare yourself for the route

It’s vital to know the uphills, downhills and the water stops of the marathon route and the same goes for your business. Study what others have done in order to make their business a success, and be prepared for times when your business might be busier or quieter to help with the first few months of cash flow.

5. Remember you are not on your own

Our research found that a third of successful entrepreneurs have turned to a mentor or support group for advice about their company, compared to just 14 per cent of respondents who ran a business that had to close. Starting the business you have always dreamed of is undoubtedly a personal challenge just as a marathon is, but support is vital. Know when to ask for help and turn to a friend or expert for advice, just like training partners and support teams can help as they cheer you on.

Small business owners are feeling good about sales, the economy and future conditions, with women- and millennial-owned businesses reporting significant increases in sentiment and expectations for the future. Capital One's latest Small Business Growth Index found 50% of small business owners (SBOs) overall feel current business conditions are good or excellent (up from 41% a year ago), and the same percentage expect to see conditions improve in the next six months – the highest level reported since spring 2012.

"It's encouraging to see more small businesses feeling optimistic about their performance and future prospects, particularly women and younger business owners who represent increasingly significant segments impacting our local and national economies," said Buck Stinson, head of small business card at Capital One. "At Spark Business, we're committed to understanding the opportunities and challenges impacting small businesses across the board, so we can build solutions that enable growth and success."

Meanwhile, despite the increased optimism, the survey showed many businesses appear hesitant to invest in people, technology and marketing that may fuel business growth, with a majority of SBOs reporting they have no plans to hire (67%), increase marketing (66%), or invest in new technologies such as mobile payments (62%) in the coming six to twelve months.

Following are key themes revealed by the Spring 2017 Small Business Growth Index. Additional data and insights, including historical, demographic and regional comparisons, can be found here.

Business owners are feeling good and expect conditions to continue improving in 2017.

• Fifty-percent of all SBOs report their financial position is about the same as a year ago and 50% also expect to be in a better position six months from now; meanwhile only four% expect to be in a worse position in six months – the lowest reported percentage since fall 2012.
• Women and millennials are driving optimism, with 47% of women saying they'll be in a better financial position six months from now (up 13 points from fall 2016) and 73% of millennials expecting better conditions (compared to Gen X at 53%, and Baby Boomers at 49%).
• SBOs in the Northeast and South are considerably more optimistic, with 57% of SBOs in those regions expecting improved conditions, compared to the Midwest (45%) and West (42%).

Despite the optimism, most SBOs are still hesitant to invest in the near-term.

• Only 27% of SBOs plan to add more employees in the next six months (compared to 26% one year ago) with nearly two-thirds (63%) of those hires being full-time associates vs. part-time or contractors.
• Top factors SBOs believe may impact business include: taxes (50%), managing cash flow (32%), keeping up with technology (30%), minimum wage increases (22%), access to capital (16%) and immigration reform (9%).

Businesses that use data analytics and mobile payments are more likely to have increased sales.

• Nearly half (46%) of SBOs who currently offer mobile payments say sales have increased over the past six months, compared to 35% who do not use mobile payments.
• Similarly, 44% of SBOs who use data analytics tools report increased sales, compared to 33% who do not.

(Source: Spark Business)

Looking to start your own business? Maybe you’re a few steps in already? You feel like you’re treading on egg shells? Gary Turner, UK Managing Director of Xero, here gives a brief analysis of all that can go wrong, and how to avoid them!

Entrepreneurs deserve a huge amount of respect for taking the leap to start their own business venture as it’s no small feat. You just have to look at the troubling statistics which show 21% of SMBs don’t make it past their first year to realise the challenge that’s set before them. I’ve been vocal that 2017 will be an unpredictable year for the UK economy, and following last week’s budget it’s vital now more than ever that a new business starts with as few issues as possible.
Here are my 6 Don’ts to ensure success in your first year.

1. Don’t rush your dream team

You may have a small network, you may have never hired an employee, and you may have many family and friends happy to help out. This can lead to new business owners bringing in familiar faces to help get them off the ground – but while this is useful for some aspects of work like admin and delivery, external expertise are vital. It’s not advisable to bring in family just because they’re accessible, take the time to recruit people who belong in a small business. The key traits to look out for are ambition and initiative, and an innate ability to work in teams. Alongside a specific skillset for different aspects of the business such as marketing, IT, sales and the like, it will help frame your company as a professional one.

2. Don’t market your company before developing your brand 

The excitement of launching your own business is unparalleled, and naturally you’ll want to shout about it from the high heavens. However, before you go spending money on services claiming to boost the potential of your social media channels, you first need to create your own business identity. This includes creating your own brand values, distinguishing your unique selling point, identifying your tone, and keeping consistent messaging across all PR and marketing. No matter how someone hears about your business, it needs to be in line with where they may hear about you elsewhere.

3. Don’t lose sight of your personal life

Just because you’ve become a business owner doesn’t mean it should become who you are. You need to remember to keep you personal life separate from business. We need to respect ‘burnout’ as a real phenomenon, it’s not something only the weak experience, it’s human to feel run down and demotivated from a lack of enjoyment in life, so take the time to focus on you. A lot of this boils down to balancing work with play, and today’s technology makes accessibility to work a lot more possible. By using the cloud anywhere, you can cut commuting time and spend that time on extracurricular activities.

4. Don’t assume the role of an accountant

There are intelligent software tools that allow you to take your finances into your own hands. Online platforms can allow you to analyse your numbers, expenses, wages, POs/invoices and more. And while we believe this makes small business finance accessible and more easily digestible, nothing compares to the experience of an accountant. They’ll be able to monitor books for errors, use their knowledge to discover your eligible tax breaks, offer guidance and insight as a result of your numbers and more. Yes, accounting tools are important, but using someone’s expertise will help those numbers go that much further.

5. Don’t set yourself unrealistic goals

Ambition is important, but your first year should be the time to get your ducks in a row. Setting specific and high targets can be demoralising if you don’t hit your highest hopes, which is why you should set bronze, silver and gold targets. This will allow for a feeling of success, but it will also encourage you to push yourself to strive for gold – be it sales, exposure, clientele - targets will always be beneficial in building motivation and momentum.

6. Don’t go at it alone

Recent findings from Xero’s Make or Break report shows that, despite Brexit being a huge concern, 58% won’t be seeking help from a mentor. It’s unclear why, perhaps it’s from a lack of access to industry peers, perhaps it’s a strong sense of self-belief, but either way mentors can bring huge benefits . There is no shame in asking for advice, and most people will be happy to share their wisdom and experience. Don’t make a mistake that could have been easily advisable, hit the forums, attend networking events or even ask people in different industries – any knowledge you can soak up is vital to your future success.

Following last week’s announcement of the Canadian Budget 2017, Trevor Parry, M.A., LL.B, LL.M (Tax), President of the TRP Strategy Group, provides Finance Monthly with specialist insight into the impact of the announcement and potential outlooks for the next budget.

Despite active rumours that dramatic changes were coming in the 2017 Canadian federal budget, the document as tabled in the House of Commons on March 22^nd contained virtually none of the controversial elements budget-watchers had feared—such as an increase to the capital gains inclusion rate or changes to the taxation of employee stock options.

Instead, Finance Minister Bill Morneau brought forward a status quo document that reads more like a budget update than a true or full budget; while nevertheless clearly and directly signaling the Trudeau government’s appetite to eat away at particular tax benefits “as soon as the time is right.” In the wake of the budget announcement, rumours are now circulating that like his (Conservative) predecessor Jim Flaherty in 2011—which saw federal budgets in March and then again in June, although separated by an election—a second federal budget may be tabled in a single calendar year, with pundits suggesting fall (October?) for a possible additional 2017 budget.

Status quo with adjustments at the margins

The 2017 budget tabled on March 22^nd and entitled “Building a Strong Middle Class” is organized around five main themes*:

1. Skills, Innovation and Middle Class Jobs

The Government is proposing to invest an additional $4 billion over the next five years in such areas as developing “superclusters” (dense areas of business activity) to spur innovation; the creation of a strategic innovation fund; funding and promotion of clean technologies; and growing Canada’s advantage in artificial intelligence.

2. Investing to Create Jobs and Strong Communities

The government has announced plans to accelerate implementation of the Canada Infrastructure Bank; modernize Canada’s transportation system; work with the Provinces and Territories to invest in green infrastructure; support families through early learning and child care; improve indigenous communities; and build a new National Housing Strategy. While these programs account for almost $21 billion in expenditures over five years, they will be funded by reallocating current budget dollars.

3. A Strong Canada at Home and in the World

Included under this “theme” is new investment in home care and mental health; creating healthier First Nations and Inuit communities; providing greater support for veterans and their families; and enhancing the security and safety of Canadians. It is of interest that some of the additional funding for these initiatives will come from the reallocation of almost $1 billion that had previously been set aside for defence funding of large scale capital projects.

4. Tax Fairness for the Middle Class

This theme focuses on ensuring that the tax system is fair in both design and implementation. This is to be accomplished by closing tax loopholes; cracking down on tax evasion and combatting tax avoidance with an additional investment of $500 million over the next 5 years; eliminating ineffective and inefficient tax measures; and providing greater consistency in the tax treatment of similar types of income. Specific initiatives are outlined in greater detail below, with the government estimating these programs will increase tax revenues by almost $5 billion over five years.

5. Equal Opportunity

In the 2016 Fall Economic Statement the Government committed to completing and publishing a gender-based analysis of budgetary measures starting with Budget 2017. Included in Budget 2017 is a discussion on how specific proposals will have a positive impact by addressing gender inequality.

“Tax fairness for the middle class” means coming tax punishment for high income-earners

So why such a milquetoast effort from Morneau’s sophomore effort? Speculators conclude that Trudeau et al. are waiting and watching on actions south of the border before making any bold strokes here at home. What this means for the Canadian high income-earner, business owner or entrepreneur is a continuing requirement to remain vigilant and engage in defensive tax planning for the upcoming months.

What could be on the chopping block for the next budget round (whenever it comes)? Everything from income sprinkling from a testamentary trust to holding passive investments within a corporation to tightening the rules that allow family members to share income (a common strategy used by family-owned businesses). Thus when the Liberals decide to move back above the treetops to mount their full assault as they have telegraphed in their actions to date—and as reinforced by the threats contained in the March 2017 budget announcing “further study” of various issues—Canadians would do well be prepared with effective countermeasures.

(*with files from “CALU”, the Conference for Advanced Life Underwriting.)

According to the annual Business Pulse Survey by SunTrust Banks, Inc., nearly two-thirds of business leaders expect the global and US economy to improve through 2017. Even more optimistic about their own companies, as 75% of middle market (annual revenue of $10-150 million) and small business (annual revenue of $2-10 million) leaders feel their business outlook is strong. Both segments have high expectations for healthcare (46%) and tax reform (44%) as a catalyst for growth. Mid-market leaders also cite reducing regulations (39%) and investments in infrastructure (37%) as ways to spur business momentum.

"This year, business leaders are feeling very prepared to take advantage of growth opportunities, 75% believe they have access to the critical capital needed," said Allison Dukes, Commercial and Business Banking executive at SunTrust. "Three out of four have a goal-setting process linked to long-term growth strategies and are comfortable that they will achieve their goals."

In 2017, the short term priority for 31% of mid-market companies is profitability, a 29% increase since 2016; while 34% of small businesses are focused on revenue, a 54% increase from last year.

Looking out five years, introducing a new product or service is still the top long-term strategy to stimulate growth for both mid-market (40%) and small business leaders (31%), while making a major capital investment (31%) and acquiring another company (17%) is a greater priority for the mid-market. To undertake these initiatives, common strategies include using cash on hand, reducing costs, obtaining a bank loan and reinvesting corporate earnings.

"Over the past four years, businesses in the small and mid-markets have taken incremental steps toward growing their companies, including M&A, hiring, and improving cash flow. At SunTrust, our purpose is to Light the Way to Financial Well-Being for our clients, and we have been working with them to ensure they have the tools and capabilities to grow their business in a smart way. Now, they see an opportunity for significant structural changes in taxes and regulations to unleash additional business growth," added Dukes.

Decision-makers representing more than 500 small and mid-size businesses participated in the SunTrust/Radius Global Market Research survey. Survey results have a maximum margin of error of +/- 5 percentage points at a 90% confidence level.

(Source: SunTrust Banks, Inc.)

Small businesses are facing the most uncertain economic time in recent history, yet the Make or Break Report 2017 from Xero examining the opinions and character traits of successful small business owners going into 2017 has revealed irrepressible optimism as a common trait.

Small business confidence was still found to be high, particularly with very young businesses, despite economic uncertainty being the most pressing concern for UK and US business owners. The vast majority of 1 year old (94%) and 2 year-old businesses (84%) said they felt more confident going into 2017 than the previous year, and over three quarters (79%) of small businesses said they felt confident about their business’ survival in 2017. For those going through a tougher time, nearly a fifth said they expected 2017 to be a turnaround year for their business. So why is it that small businesses are feeling so confident?

They want to cut themselves free of the red tape

• A huge 74% of UK small businesses said they remain confident about the future despite Brexit and the resulting economic instability being the number one concern for small businesses going into 2017.
• Nearly a fifth (18%) said that Brexit would reduce some of the restricting red tape and legislation surrounding the EU, increasing trading and local buyers as a result. This view was shared by US small businesses who were asked the same question in relation to Trump’s presidency, highlighting fewer regulations as the most positive impact.

They are shunning traditional office structures to increase productivity

• Successful SMBs are exchanging traditional office structures for remote working and flexible working hours (42%), hailing this as the biggest driver of productivity for themselves and their staff in 2016.
• 94% of small business owners using cloud software report benefits, citing paperless systems, remote working and simplified software management.

They are prioritising the health and happiness of themselves and their employees

• Over three quarters of small business owners (78%) across the UK and US believe the personal health of them and their staff directly impacts on the success of their business going into 2017.
• Getting enough sleep was revealed to be the most important factor for nearly two thirds (63%) of small business owners to stay healthy in body and mind.
• Exercising regularly, getting support from friends and family and giving themselves adequate time off was also highlighted by small business owners – in the last year 84% found ways to take a break with holidays and avoiding the commuting rush by working from home occasionally.
• In fact, over half of small business owners (52%) said they wanted to give themselves more of a work-life balance in 2017 than they did the previous year.

They see themselves as in control of their own destiny

• For successful business owners, the report revealed that risks are seen as part of the job, as over half (54%) said they have taken financial risks with their business.
• When these risks did not result as expected however, over three quarters (77%) of small business owners said they had no regrets – they see these mistakes as a fundamental learning experience.
• Business owners were again found to be optimistic when forecasting despite the economic outlook - over two thirds (69%) said they are optimistic and aggressive about their achievable targets.
• For 52% of those surveyed, they did not think Brexit would have an impact at all, and for nearly three quarters (74%) they were confident in their business’ success, regardless of instability.

Keeping grounded

While confidence and optimism from small businesses was found to be the underlying trait of small business owners, the report revealed areas for improvement and viewpoints to consider.

• Over a third (42%) of small business owners considered their accountant to be a trusted business advisor or mentor, but over half do not necessarily always follow their advice.
• Fewer than one fifth of small business owners (16%) said they were worried about automatic pension enrolment, but behind Brexit and changes to the national living wage, auto enrolment was the third policy accountants were most concerned would impact their clients in 2017.
• Chasing payments for overdue invoices still plagues as the biggest time waster for a fifth of small business owners across the UK and US. The threat is compounded by the importance small businesses put on cash flow in 2017 – for over a third (34%), cash flow was said to be more important than ever given the instability of the economy.
• With small businesses’ biggest worry for Brexit being reduced consumer spending, small businesses admitted to forecasting far more aggressively than accountants would like their clients to.

Gary Turner, UK co-founder and managing director at Xero, said: “Our report has revealed a remarkable trait among small businesses to look on the bright side, particularly in the current climate when faced with so much uncertainty. Given the importance of small business health on our economy here in the UK, it is fantastic to see that small business owners are feeling so confident about the future. But, as cash flow and healthy finances have never been so vital, owners must keep a sense of realism and listen to external advice and support to ensure that business continues to grow and prosper through the next few years.”

Josephine Fairley, Green & Black’s co-founder and serial entrepreneur said: “Owning a business is invariably a rollercoaster full of ups and downs and you must learn ways of thinking your way out of difficult situations, so it’s brilliant to see such optimism coming through as a defining quality in an entrepreneur from Xero’s report. Having a concrete plan for your business combined with a can-do attitude can help you to win regardless of what you are faced with.

“While optimism is important, consulting with experts and keeping on top of your data can enable you to make the right decisions for your business that will help you not only survive, but thrive.”

(Source: Xero)

In the last few years fintech has taken a prime spot in R&D, investment and market value, and is increasingly crucial to the progress of financial services and the growth of businesses worldwide. Here to tell us why, and offer particular insight into the development of this key sector is Gary Turner, Co-founder and UK Managing Director of globally leading accounting software programme, Xero.

Fintech, despite being amongst the newest global industries, is already one of the most vital in terms of supporting the growth of businesses across the world. At the time of publication, there are 1,362 fintech companies across 54 countries with the US, UK and China holding strong as innovators and market leaders in financial innovation. Globally, businesses are working to become entirely digital, and early disruptors saw the opportunity to create a financial digital platform to perfectly compliment the modern way of working - the timing and execution of fintech allowed it to become the biggest industry in the world. But for the less initiated, this raises questions around how fintech has had such an influence in macro and micro economics.

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The key is simple – it creates a level playing field for businesses who aren’t restricted by software. SMB growth can often be restricted by the online tools available within budget, the data they have access to, and how quickly they can access it – all of these shortcomings have been recognised and seen as potential by the fintech industry. By using cloud-based software, business owners can interact with a real-time system of record, something that was previously only available to enterprise companies. This has helped create a central platform for small businesses and owners to share information with other businesses and partners, as industry relationships can be improved and built upon through open data.

Numbers in real time

Another relationship that has evolved is the one between a business owner and their finances. Originally, owners would have a recurring meeting with their accountant to get a briefing on their business’ performance, but cloud software has changed the routine. Now, with improvements to financial technology, owners can now log-in anytime to check in on the numbers that keep the business running. The advantages for an owner to oversee trends on a daily basis are paramount to their success, with charts and graphs making it simple to understand where you are over or under servicing. Quick data allows for quick action. Having data readily available in one place gives a business understanding of what their customers need.

Public vs private

This brings to light what fintech means for the private sector, and the public sector is looking to learn just how it can improve the way they work too. In the UK we have being trying to streamline the HMRC and other departments’ services by shifting to a digital services model – this is an example of institutions recognising how critical real-time financial data is for business success. In early 2017 the HMRC announced new concessions to the policy to support small businesses who were struggling with some of the technicalities of the roll-out - while most businesses will have access to a personalised digital tax account by the end of the roll out, free software will be available to the majority of small businesses, while those that cannot go digital will not be required to. Despite the recent changes, the overarching vision of the Making Tax Digital policy will ultimately be of benefit for the UK’s business infrastructure, as the appetite for digital services is growing and traditional paper-based processes gradually becomes obsolete.

A global change

The UK private and public sector have felt it necessary to make these seismic changes, and it’s interesting to see how it translates across the world. Unsurprisingly the US, UK, Europe and China have had the largest fintech investment in the past five years, but India is one country that has expanded its offering, with a $2.2 billion investment – the money being pumped into the global industry is phenomenal. Beyond the usual suspects, Luxembourg has experienced huge growth in its digital economy in the past 10 years and has invested substantially into its world-class IT infrastructure, all of which is provided to entrepreneurs looking to innovate in the fintech sector. Similarly, Hong Kong has earmarked $250 million for an innovation and technology fund designed to match funding from venture capital outlays in local tech startups.

It’s these reasons and more that has allowed fintech to evolve, but the growth isn’t forecasted to slow down. In the past 12 months, there has been more than $1 trillion worth of transactions processed, with more money comes potential for more learnings, the potential for more learnings must derive from intelligent software – this thirst for insight will only see the financial web grow more powerful.

With monumental funding and innovative initiative schemes, the next 12 months will only see the industry go from strength to strength as the rollout becomes commonplace for all businesses across the globe.

Here Finance Monthly benefits from an exclusive opinion piece authored by Chirag Shah, CEO of Nucleus Commercial Finance, who gives us his thoughts on the P2P market, financing and banks.

The P2P market is attractive to consumers and investors because its mentality and practices are distinct from those of conventional retail banks. However, the desire to present an alternative should never become a wilful disregard for standards.

That banks are too strict with borrowers ought to be beyond dispute. Pick a small business owner at random, and chances are, they’ll have a story about being turned down for loans on spurious or non-existent grounds. We’re now at the point where banks are being compelled by law to refer rejected applicants to alternative financiers.

But if there is danger in stringency, there is also danger in extreme leniency. When P2P lenders start emphasising flexibility at the expense of due diligence, they are flirting with trouble – and if they don’t impose the proper constraints on themselves, their regulators certainly will.

Checks and balances

Worryingly, there is some evidence that lenders are failing to properly check their borrowers. Writing in 2013, the FT’s Patrick Jenkins wrote that peer-to-peer lending was ‘inherently unsafe’, and intimated that the industry’s low default rates were illusory; they “look flattering because they only go back a few years.” I don’t agree with his first conclusion, but his second is becoming tough to refute.

RateSetter, for example, reported a default rate of 2.81% on loans originating in 2014: a number that’s both above expectations (2.07%) and potentially capable of eliminating the company’s provision funds. Late last year, they parted company with the head of Professional Business Finance and disbanded the team. They’re not an anomaly, either – LendingClub was recently forced to tighten its requirements for funding after several borrower defaults.

It’s worth keeping Jenkins’ point firmly in mind here: the industry is older than it was in 2013, but it’s still very young. These default rates may get worse as more time goes by and we get a fuller picture of the sector’s health. There’s a reason that P2P organisations the world over tend to advertise the amount they’ve lent openly – and keep all data about the amount they’ve recovered to themselves. How many borrowers have missed a payment on the loans? Their due diligence processes make it borderline impossible to verify the integrity of their loans.

For example, Prosper – one of the biggest US P2P lenders – checked income and employment status for only 59% of loans between 2009 and 2015. When you consider that a sixth of those loans it did investigate got cancelled, this approach seems negligent at best. Anecdotal stories of businesses getting finance from multiple P2P lenders only complicate the situation further. Shouldn’t one of these providers consider this practice a red flag?

The future of P2P finance

Two possible conclusions emerge. The first and most uncharitable is that P2P lenders, in their desperation to supply large volumes of finance, simply don’t care about trifling concerns such as due diligence. The second is that – without the firm hand of the law to guide them – their internal processes simply aren’t set up to perform the proper checks and detect bad borrowers.

The latter scenario is far more likely, but rule makers won’t appreciate the distinction. Bailey, the head of the Financial Conduct Authority (FCA) – which has probed the industry twice in two years – has stated his belief that P2P might lead to “the next big regulatory or financial services scandal.”

Not knowing the difference between flexible lending and irresponsible lending has already been calamitous for alternative financiers such as Wonga: FCA-imposed affordability checks have left the company reporting record losses.

P2P shouldn’t expect mercy. If the sector is seen routinely lending to high-risk businesses, if it’s perceived to be faltering – if there’s the faintest whiff of poor practice – heavy regulation will follow. And should the industry become heavily regulated, it’ll become much harder for P2P companies to provide the flexibility that’s supposed to be their chief selling point.

Reforming from within

In the fallout from the LendingClub fiasco, some P2P lenders have warmed to the prospect of further regulation. I wouldn’t necessarily go that far, but the industry could certainly benefit from some stricter policing.

And better it comes from within than outside. Bodies like the FCA exist to find and close loopholes. If they sense that even one lender – and, as Wonga demonstrated, it only takes one – is taking advantage of the rules, they’ll simply change the rules. There’s a perception in some quarters that P2P is getting away with something. It’s wrong, but certain lenders don’t help the well-meaning majority.

If you’re one of them, the best thing you can do is perform the proper checks. This doesn’t mean you can’t be flexible. It doesn’t mean you need to reject applicants out of hand. It certainly doesn’t mean you need to use any kind of lengthy checklist. It simply means you shouldn’t lend money to businesses that might not be able to repay you.

Failing to undertake basic due diligence isn’t ‘disruptive’, but reckless. Communicate with other providers. Collaborate on best practices. Help them improve when they fall short, and commend their example when they succeed. The industry’s survival depends on it.