MANY SMEs are struggling to cope with a string of headaches, from the pandemic and supply chain issues, to soaring inflation and the energy crisis. So, how can they strengthen their resilience?

A new white paper from the Deakin Integrated Reporting Centre, with the support of ACCA and CA ANZ, suggests that integrated thinking, which ultimately leads to integrated reporting, is the key.

The report, ‘Can integrated thinking be the key to SMEs’ resilience?’, argues that integrated thinking would encourage SMEs to ask themselves key questions, including:

• Why am I here? What kind of value is my business here to create?

• What do I need to survive and then thrive?

• How do I get to where I want to be?

It adds that integrated thinking would bring significant external and internal benefits to SMEs, including:

• Better access to capital. SMEs could use integrated reporting to provide a more complete picture of their strategy, business model and possession of the resources that drive business performance. This would enhance their credibility with finance providers.

• Better understanding of the business. The business strategy and value-creation process becomes clearer to all stakeholders.

• An improved ability to attract and retain staff. Integrated thinking can help SMEs articulate their purpose and strategy more effectively, benefiting them in the recruitment and retention of talent.

• A communication tool to gain new business. If SMEs could demonstrate that their strategy aligns with the aims of their customers and other external stakeholders through an integrated report, this could create a competitive advantage.

• Supporting growing information requests. SMEs will be better equipped to respond to environmental, social and governance-related information requests.

What is integrated thinking?

Integrated thinking is defined as an active consideration by an organisation of the relationships between its various operating and functional units and the financial and non-financial capitals that it uses or affects. According to the International Integrated Reporting Council, integrated thinking leads to integrated decision-making and ‘actions that consider the creation, preservation and erosion of value over the short, medium and long term’.

Perceived complexity

To date, few SMEs have embraced integrated reporting, which is hardly surprising given the many pressures they face. And there is a lingering perception that integrated reporting is too complex for SMEs, which the report is keen to address.

“In many jurisdictions, SMEs are facing growing compliance pressures: regulation, tax and reporting requirements,” says the report. “But SMEs should also turn their gaze a little beyond this compliance burden, to think also about the opportunities that come with integrated thinking and integrated reporting.”

Participants in a round-table discussion, which informed the report, pointed out that the SMEs most likely to adopt integrated reporting were already thinking in an integrated way.

“It is clear that SMEs can begin with integrated thinking, and work towards integrated reporting as part of their long-term journey towards better reporting and the creation of value by their business over time,” says the report. ACCA recommends that SMEs consult its playbook, which can guide them towards becoming better integrated thinkers.

Stakeholder support crucial

But ACCA recognises that this is not a journey that SMEs can and should have to undertake alone; it calls for governments and policymakers to reduce the administrative burden on SMEs to help them through the recovery phase. The report makes a number of recommendations:

• Governments — to support and incentivise SME service providers to develop the skills, guidance and tools to facilitate adoption of integrated thinking and integrated reporting

• Accountants, especially SMPs — as trusted advisers to SMEs, to assess the potential benefits of integrated thinking and integrated reporting for their clients, and encourage adoption where appropriate

• Professional accountancy associations and industry organisations — to educate members — particularly SMPs, who work as trusted advisers to SMEs — about the benefits of integrated thinking and integrated reporting for their clients

• Software providers — to work collaboratively with SMEs, SMPs and other stakeholders to develop solutions that facilitate and simplify integrated thinking and integrated reporting processes

• IFRS Foundation — to consider developing simplified, tailored guidance to

support the International Integrated Reporting Framework and Integrated

Thinking Principles.

• Academics — to undertake more research to enhance understanding of the potential benefits and costs of integrated thinking and integrated reporting to SMEs.

The Organisation for Economic Co-operation and Development (OECD) has warned that the ‘post-COVID world will not be a return to business as usual, as SMEs hoping for a return to the old normal are not likely to survive’. It adds that small business owners need to be ‘active agents in crafting their own future success’. Integrated thinking and integrated reporting could provide the pathway.

Author: Liz Fisher, journalist / Source: ACCA Accounting and Business magazine