Understanding small companies: Why you need data from official sources

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Understanding the universe of small companies that exists is critical for most organisations – especially financial services firms. Core business functions like customer due diligence and credit risk checks rely on it.

Yet because the company data landscape is fractured, this makes it difficult to know what companies exist – and not all data sources allow you to make decisions with confidence. 

To help you navigate through, this blog post outlines why the foundational company data you rely on to power critical business processes should come from official public sources.

Another advocate for the importance of official company data is Jose Plehn-Dujowich, Founder and CEO of BrightQuery, a company that has incorporated OpenCorporates’ data into their solution, who shares his perspective below. BrightQuery provides quarterly financials, monthly employment and payroll, and firmographics on over 200 million private and public companies around the world, accounting for over 1 billion employees, with a history going back to January 2010. 

Problems that understanding the universe of small companies helps to solve

Visibility over small companies is important because of their central role in the global economy. “If you look at the majority of growth and economic activity, a disproportionately large amount is accounted for by small companies”, says Jose. 

Understanding small companies can help with:

  • Customer due diligence
    Financial services firms want to attract new and dynamic, but often small, companies as clients. “Financial institutions often target small companies in the hope that they will become larger”, says Jose. Having the right data on these companies helps a financial services firm to make a more informed and risk-based onboarding decision.
  • Credit risk analysis
    When deciding to extend credit to a company, financial services firms need to know foundational information about them, such as their incorporation date and basic firmographics, to determine their financial health. 
  • Sales and marketing insights
    Understanding what companies exist, especially newly formed companies, can add insight to the sales and marketing strategy of a financial services provider.

We’re seeing a good example of the value of provenanced data on small businesses during the current pandemic. The Miami Herald used company data from OpenCorporates to identify recently-incorporated businesses that fraudulently claimed millions of dollars of relief under the US Paycheck Protection Program (PPP). The Times conducted a similar investigation using our data into claims to the UK’s Coronavirus Job Retention Scheme that appeared fraudulent.

But why is it difficult to gain this understanding?

Realising these benefits is difficult because of the challenges facing companies seeking data on small companies. 

These include:

  • Siloed company data
    Data on companies is often siloed in different national or state registries, especially in the US where there is a different registry for each state. Without having the data all in one place and a common schema underpinning it, it’s impossible to make useful comparisons or analyse the data at scale.
  • Legacy ‘opaque’ data vendors
    Many legacy data providers offer poor quality company data. Jose says company information can often come from unreliable methods such as scraping a company’s website, social media or news articles, surveying the company directly or statistical modelling. “These traditional methods can lead to all kinds of errors”, he says. “Websites and news articles are not always factual, surveys are not always answered truthfully and statistical modelling is sometimes right and sometimes wrong”.
  • Small footprint
    Smaller companies tend to have a smaller online presence and economic footprint than larger firms, and fewer regulatory filings. 

So why should you collect your foundational company data from official sources?

The best way to be able to use foundational company data, such as a company’s address or incorporation date, with confidence is to first collect it from official sources. 

This approach has three main advantages:

  • Data quality
    Whilst company registers often do not verify the information they are given, the data from these official sources is of higher quality than legacy business information vendors.

  • Provenance
    Company data is only reliable if you can evidence from where and when it was collected. “Without being able to identify the provenance of a source of information, it is extremely difficult to assess the quality of the information which might impact the overall assessment of a particular business”, says Jose.
  • More defensible decisions
    Using official, verifiable and provenanced data means financial services firms can make risk-based decisions that are defensible. 

BrightQuery uses OpenCorporates’ data alongside other verifiable official sources to understand the financial health of companies – especially smaller ones. “We at BrightQuery feel that it is extremely important to only use official sources to make inferences about companies”, says Jose. 

Our data provides the foundational information on a company for BrightQuery’s users, including when it was established, its legal name, and where it is registered. Then BrightQuery layers the company’s audited financial statements and information on headcount and payroll on top. “This combination allows us to assess to a very high degree of quality the history of a company, its financial health and size, and what it does”, adds Jose.

So next time you see company data used in a critical business process, ask yourself first: where does this data come from? Is it from an official source? If so, do I have the provenance to prove it and to justify any decisions I use it for?

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Published by OpenCorporates Communications

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