ACCA: Future of business finance

29 November 2012

ACCA was involved in the original project behind the SAMI/L3F scenarios as a result of its work on bank regulation and governance in the aftermath of the financial crisis.

A group of finance experts met yesterday at Bucharest’s Athenee Palace Hilton, at an event organised by ACCA (Association of Chartered Certified Accountants), to share their ideas about how businesses might finance themselves in the year 2050.

The workshop found that some key trends are seen as ‘givens’ regardless of how the future will turn out:

• In the coming decades, small and medium-sized enterprises (SMEs) will need to be matched to more risk-loving investors, but with the world population growing older and more risk-averse this will be a challenge.
• Under most scenarios, integrated reporting will become more important for larger businesses, and even smaller, low-profile businesses could come under scrutiny as their impact on their communities becomes more obvious. Different scenarios might see more or less standardised approaches to measuring impact.
• Medium-sized and large firms will have strong incentives to invest further in their finance functions in order to develop tailored in-house expertise to help them access finance. 
• New financial products will need to be developed for medium-sized and fast-growing firms, occupying the space between equity and debt, and finance providers will gradually come to accept intangible assets as collateral. 
• Informal businesses will have to transform in order to survive by either going formal themselves or developing formal ties to affinity groups.
• Although equity finance will gradually become more popular in general, family businesses are unlikely to truly embrace this type of funding.

Other trends depend on how the future scenarios will play out:

• Under some scenarios, affinity groups (whether ethnic, linguistic, social or religious) will start to emerge through co-operatives, mutuals and other associations as de facto regulators, business support providers and even finance providers in their own right. 
• The rise of local government and/or affinity groups are both likely to be major influences on business financing, empowering  bank managers and supporting relationship banking. These developments, however, are also likely to make business financing a more political, as opposed to market-driven, process, allowing room for inefficiencies to develop.
• ‘Steady state’ family businesses growing at only a moderate pace are unlikely to be viable under some scenarios – their efforts to retain control by financing themselves through retained earnings could leave them at the mercy of larger competitors unless they are aggressively protected by their governments.
• Under ‘muddle through’ scenarios in which the status quo survives mostly unchanged, large businesses will increasingly make use of bond issues to finance themselves.

Press release

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