Can ESG Practices Boost Your SME’s Bottom Line in 2024?
As 2024 draws to a close, the Association of Chartered Certified Accountants is urging SMEs and individuals to take a closer look at their finances and plan ahead. With rising costs, fluctuating income, and increasing regulatory demands, it’s more important than ever to conduct a solid year-end financial review. This will help businesses stay resilient and set them up for success in 2025.
ACCA’s latest insights show that inflation and escalating costs are major concerns, with 58 percent of SMEs highlighting these as their biggest challenges. On top of that, global economic uncertainty and new regulations—like tax compliance and ESG reporting—are making it even more essential to carefully manage finances as the year wraps up.
Here are five tips to help SMEs with their year-end financial reviews:
1. Compare budgets with actual performance: One of the first things SMEs should do is review how their actual spending compares to their budgets. This will reveal any areas where they overspent or underspent, giving them a chance to adjust and improve their financial planning for the next year. It’s a great way to maximise profits and ensure more accurate financial forecasts.
2. Prepare for tax and compliance: There’s a lot at stake when it comes to tax compliance, especially in the UAE where penalties for late corporate tax filings can go as high as AED 50,000. At year-end, SMEs should make sure their financial records are in order, reconcile their accounts, and consult tax professionals to avoid any mistakes. They should also look into deductions available for investments in ESG initiatives or technology to optimise their tax position.
3. Strengthen cash flow management: With inflation squeezing margins, having a strong cash flow is critical. Businesses should prioritise paying off high-interest debts and building up cash reserves to weather any potential economic volatility.
4. Leverage technology and AI: The UAE’s SME sector is rapidly transforming thanks to technological advancements. By adopting AI and other digital tools, businesses can streamline their operations, make better decisions, and stay competitive. These tools also help with complex ESG and regulatory reporting.
5. Embed sustainability into business models: Sustainability is becoming a big deal—not just for compliance, but also for staying competitive. Nearly half of SMEs now face ESG reporting requirements, so integrating sustainable practices is not only necessary for regulations but also a way to attract investors and eco-conscious customers.
Kush Ahuja, Head of Eurasia and Middle East at ACCA, emphasises that the year-end is a great time to reflect on financial performance and gear up for future challenges. He believes that by adopting new technologies, focusing on sustainability, and investing in talent development, SMEs can strengthen their foundation for growth in 2025.
SMEs are the backbone of the GCC region, representing 90 percent of all businesses, and they play a crucial role in the region’s economic growth. The research points out the challenges SMEs face, such as rising costs, talent shortages, and ESG compliance. However, by addressing these challenges with strategic planning and tools like AI and PropTech, they can unlock new growth opportunities.
On a broader scale, ACCA’s Global Economic Conditions Survey shows that economic confidence is on the rise in the Middle East, driven by growth in non-oil sectors and increased capital spending. Despite global uncertainties, the region remains resilient, and SMEs are leading the way in driving economic recovery and innovation.
Ahuja highlights that tailored solutions, like controlling costs, adopting digital tools, and upskilling the workforce, are key strategies that can help SMEs thrive, even in a volatile global environment.
