The Importance of Mutual Understanding Between External Accountants and Owner–Managers of SMEs

Abstract

This study investigates the perspective of the owner–manager of a small or medium‐sized enterprise (SME) on the importance of mutual understanding with an external accountant. Mutual understanding means that the owner–manager understands what the accountant is saying and feels understood by the accountant. The results, based on 310 completed surveys of Belgian owner–managers, show that owner–managers who have a high level of mutual understanding use the advice of their external accountant more extensively. This is in turn positively linked to the financial health of an SME. Furthermore, several drivers that enable the establishment of a high level of mutual understanding are explored. Owner–managers with a high level of mutual understanding consider their accountant as a strategic partner, experience a high level of proactive behaviour with them, have a higher frequency of formal contact, and perceive informal contact as important. External accountants should consider these opportunities in their client management and training of internal staff. Education of clients and openness also seem very important, as the level of a client's accounting knowledge, the number of accounting topics owner–managers deal with, and transparency towards the accountant are significantly positively related to mutual understanding.

The Role of the External Accountant in Business Planning for Starters: Perspective of the Self-Determination Theory

“…The results thus confirmed that the advice of an accountant truly supports entrepreneurs to carefully consider and analyze the diverse subjects of the business plan. This finding is in line with previous research that stresses the increasingly important advisory and educational role of the accountant [79,97,117]. In order to benefit from the information captured in a business plan, entrepreneurs need to thoroughly understand its dynamics [23,27].…”

“…During the business planning stage, accountants transcend their traditional role, in which they offer support to comply with legal requirements. However, in line with previous research focusing on the role of external accountants as business advisers [97,117], it seems that their service provision during the planning stage is not exploited to its full extent. External accountants guide their client entrepreneurs during the development of a business plan and the actual launch of a business.…”

“…Furthermore, they offer support to process information, to ensure that a business plan is complete [70], and to evaluate if the proposed business project is viable [19,35]. Accountants act as a sounding board or sparring partner who pursue the same goal [97], but is capable of providing a critical and objective second opinion [19,35]. Professional accounting bodies as well as the accounting practice in general might need to (further) invest in increasing the awareness of entrepreneurs.…”

“…In total, 283 starters completed the questionnaire. Previous studies related to this topic and performed in the Belgian context, showed a comparable number of responses [69,97]. The two waves of data collection were analyzed, but no differences were found in the answers from these two samples.…”

Editorial

“…De Bruyckere et al. (2020) explore the nature of the relationship between the owner‐managers of SMEs and the external accountant. The greater the understanding between the owner‐manager and their external accountant, the more likely it is that advice from the accountant is followed.…”