80% of corporate insolvencies are caused by poor financial management

I’m told that this is the view of a senior Insolvency practitioner. What does that say about the advice being provided by accountants?  Are they just missing out on opportunities or are they failing their clients? I’d like to hope that this doesn’t apply to any of the regular readers of this blog (if there are any!)

In  a recent posting on this blog I suggested that: Accountants need to show they really are business advisers as we move into recession.

Let me take that idea further and offer a theory I have developed. It’s drawn from conversations with many accountants over the years.  It’s not a universal truth but it may explain the statistic above.

Most business clients go to an accountant because they want to pay less tax not because they want a set of accounts. To the extent that the business owner wants the accountant to do accountancy work it’s largely because they need their accounts for the bank, for their funders and for the taxman. And many accountants are happy to focus on providing these backwards looking tax and accounting services.

The challenge is for the accountant to help their business clients appreciate the need for effective financial management before it’s too late.  If you look at accountancy firm websites and promotional material however this is not an area on which many of them focus.  And they aren’t well placed to ‘sell’ such services to new clients as an additional spend over and above the quoted fees for the traditional compliance work – unless the business is already in financial difficulty, in which case it could all be too late.

Many accountants would prefer to focus on providing the traditional services that they have always provided year in and year out.  Expanding into the provision of additional services might mean first devoting time to developing additional skills so as to be confident that the advice they provide will be worthwhile.

When clients require tax advice that is outside of the accountant’s area of expertise they can involve external specialists (eg: at the Tax Advice Network). But what about when a client needs solid help to implement effective financial controls? Rather than ignore the situation the accountant could outsource the provision of advice in effect by engaging an independent specialist who has the expertise, experience and time to work with the clients who need help.  My friend David Lewis for example.

I should also stress that even when the accountant offers to assist in the preparation of regular management accounts this is still not the same as helping the client implement effective financial management controls and procedures.

It seems likely that far too many corporate insolvencies can be attributed to poor financial management (whatever is the true statistic). Are accountants to blame or are they simply missing an opportunity to help their clients and to earn valuable additional fees in the process.

What do you think?

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If in doubt – imagine you’re advising a loved one

One of the pressures that all ambitious accountants endure is the need to advise on issues that do not arise every day. The more experience you have the more confidence you gain to know whether or not you have enough knowledge to give the advice without double checking it’s right.

Double checking might simply involve checking the rules in a book on the shelf, online, asking a colleague or going outside the firm to an independent specialist.  There is no shame in not knowing. You cannot know everything and it’s a mistake these days (and probably always was) to claim to be the font of all knowledge on any accountancy or tax related subject. None of the real experts would make such a claim so why should a ‘generalist’ feel it necessary to do so?

If you’re not sure though, here’s a simple test.  Pretend the client seeking your advice is a close family friend, your mother, brother or someone else you really care about.  Would you be happy for them to act on the basis of the advice you are giving?  If you’d want to double check before letting them follow your advice then you know you should double check regardless.

And if you don’t know where to turn when you require specialist tax input, I’d have to recommend the Tax Advice Network.

Like this post? You can now obtain my ebook containing loads more insights, short-cuts, tips and advice aimed specifically at accountants who want to STANDOUT and become more successful. You can buy the book or download a summary for free here>>>

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Referral marketing for accountants (part two)

In a recent post I introduced the concept of referral marketing for accountants and set out the main reasons why many accountants don’t explore this low cost marketing technique.In this post I’ll highlight some of the key issues and in part three I’ll address explain ways to overcome any reluctance to adopt this approach to seeking new clients.

So – why is that so few accountants have embraced the concept of referral marketing? By which I don’t simply mean asking clients who they can think of from amongst their friends, colleagues and others they know who might be worthwhile prospects for the accountant.No, I’m more focusing here onencouraging happy clients to know that you encourage and value referrals.In the final part of this series I’ll suggest that there are other people who could support your efforts to secure more clients through referral marketing – other professionals and suppliers to your target clients who will pass on your name (refer you) when the opportunity presents itself.

Some people undertake referral marketing without a specific plan or focus. I’m also seeing an increasing number of accountants who include a reminder that they grow through referralsas a ‘ps’ at the end of letters and emails. This can work well but it’s best if both the accountant and the recipients of the message are clear as to what sort of referrals are sought. Does your firm have a focus? A specialism? Something that will help people to refer to you as being distinct from all of the other accountants they know.

Which of the following 3 firms would you want to be with if clients from each of them were talking about you and two others to a friend who wants a recommendation to a new accountant?

“I’m pleased to recommend my accountants, ‘Wee Count Alot & Co’ who’ve looked after me for years”

“My accountants are great as they’re always saving me tax”

“I just let my accountants sort everything out for me, they save me tax and seem really focused on issues that matter to [businesses like mine]”

At least the first one knew their accountants’ name but the endorsement (referral) wasn’t particularly strong as compared with the other two, was it?

So one key action is to consider how you want to be described, what you can do to influence that and also to consider whether you intend to focus on a specific client type or service area.Until you are clear as to what you’re seeking in terms of referrals you are unlikely to get them. Much the same as shooting an arrow in the air is unlikely to secure you a bullseye if you have no target it mind.

Like this post? You can now obtain my 10,000 word ebook containing loads more marketing insights, short-cuts, tips and advice aimed specifically at accountants. You can buy the book or download a summary for free here>>>

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Referral marketing for accountants (part one)

Many accountants like to think that they secure most of their new clients through ‘word of mouth’ recommendations – often from existing clients.

I wonder how much of that is what I might suggest is ‘accidental’ word of mouth marketing. It happens at a sufficient rate to balance out the odd client loss. But it’s rarely part of an organised marketing strategy.For example do your clients know that you look to them to refer new clients to you? Do they know the sort of clients you are specifically targeting? Do YOU know what you’d like your clients to say when they talk about your firm(beyond relaying their positive views about the service, people and fees)?

I’ve been collecting reasons as to why many accountants don’t ask clients for referrals. Could it be because the accountant:

  • thinks their clients won’t know anyone suitable to be a client;
  • doubts that their clients will ever meet anyone who would be a good client;
  • hasn’t thought about it?
  • prefers to deal with complete strangers who have no preconceptions about the firms;
  • thinks it’s unprofessional to ask clients for referrals;
  • is afraid that clients might refuse to refer anyone as they don’t rate the accountant.

I was talking to an accountant in Cardiff yesterday who ONLY takes on new clients who are introduced by existing clients. If you don’t know one of his clients you won’t become a client. He spends nothing on adverts – although he does have a simple website to support his client’s referrals for when prospective clients want to know more about him and his firm.He has ten staff by the way.

I’ll address some of the reasons listed above in a subsequent blog post.In the meantime, let me ask – Are there any reasons I’ve missed?

Like this post? You can now obtain my 10,000 word ebook containing loads more marketing insights, short-cuts, tips and advice aimed specifically at accountants. You can buy the book or download a summary for free here>>>

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Will your accountancy practice survive or thrive in the recession?

With all the doom and gloom being reported in the papers you’d be forgiven for fearing the worst. But does a recession mean bad news for accountants?

What are the risks and dangers that firms face? And, more to the point, what are the opportunities?

The big worry that many firms have is of the prospective loss of clients, perhaps because they need to reduce costs and move to a cheaper accountant, maybe their products and services are no longer in demand, perhaps they will suffer major bad debts or fail to raise necessary finance. They may go into liquidation and before this they may seek additional credit and cause cashflow issues for the firm.

There are other risks too but let’s focus on that big worry. Indeed, let me suggest that perhaps these risks are really opportunities in disguise. Opportunities to:

  • Review and refine your client base to remove the overly fee conscious clients who don’t contribute very much beyond the fee they pay. This will free you up to go out and secure new clients of the type you really want to be working with. Clients who will pay you, at least partly, upfront and welcome your added-value services and advice beyond the day to day the compliance services that are all the departing client required. I addressed a related point on an earlier blogpost: Ditch the duff clients
  • Offer real business advice to clients who may be struggling or at commercial ‘risk’ – are you simply accountants or do you claim to be ‘Accountants and Business Advisers’? – Now’s the time to prove it.
  • Provide financial forecasts and cash flow projections to support clients’ applications for loan or bank finance to stave off administration or liquidation

Will clients pay for such additional services and support?  Can they afford not to do so?How much do YOU believe in the value of your services in this regard?

The opportunities for accountants are wider and more varied even than this. I’m sure of it. Yes, plans made during different economic times may need to be revised. But you can certainly plan for growth in the recession. That’s right – ‘growth’, you can thrive, not simply survive if you start planning now; Anticipate the consequences of the recession, identify how you can turn these to your advantage and put your plan in action.

If you want help doing this and you’re prepared to invest to accelerate the growth and development of your practice please get in touch. Although my main focus is on the development of the Tax Advice Network, I also like to spend time mentoring (or business coaching as some prefer to call it). But I’m not cheap and I practice what I preach when it comes to professional business advice. To do otherwise would be hypocritical. There’s more about these services on my personal website: BookMarkLee.co.uk

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Finance for accountants and accountancy firms

In preparation for a talk  I sought information from a number of banks as to their attitudes towards accountancy firms. I’ve sought to paraphrase what they told me without attributing specific comments where I was asked not to do so. (The information below was current in 2008 when this post was written. Readers should seek out current deals before taking any action)

Lending to accountants remains a sector of interest to many banks

Some firms looking to buy property/other businesses will be able to obtain 100% funding from LLoyds. The firm would need to be able to show a clear facility to service the loan and be able to provide full value security.

Interest only lending is also available from Lloyds but only to partnerships of 2 or more with keyman insurance in place.

Lloyds will also provide Equity loans, preferably secured but possibly unsecured, subject to:

  • minimum 2 partners in an existing partnership
  • loan used solely to acquire capital
  • the firm’s accounts for the last 3 years show satisfactory trnds in fee income, growth, profitability and liquidity
  • maximum 25 year term or to retirement age – whichever is earlier
  • undertaking from the firm/LP to maintain various covenants

The days of base rate plus 1% have passed such that base rate plus 1.5% is more the norm now.  However firms can still obtain fixed rates, caps and collars as appropriate to help mnage the interest rate risk – although with rates set to fall….

Coutts Bank offer what they call Partners Equity Participation Loans (‘PEPL’). Whilst these are typically taken up by the larger firms, they are also available to smaller firms that meet key criteria and where the total exposure to partners in the firm does not exceed certain criteria.  These loans are in the partner’s own name and as long as the funds are immediately injected into the firm and used for business purposes the full interest charge thereon will be deductible from the partner’s taxable income.

An issue some banks are seeing more and more is the need within firms to reduce that level of capital for new partners. This could be due to a reluctance on their part to take out substantial business borrowings on top of their mortgage. It’s important that firms inviting younger people into partnership take this into account when setting the terms.

It’s long been common for firms to offer a facility for newer partners to build up the level of their capital over a period of time.  This may not be ideal when the senior partner is looking to retire and wants to extract his capital from the firm (financed by the new partner’s capital).  In such cases it may be possible to secure a facility that provides long term ‘evergreen’ debt to the firm itself, leveraged against the balance sheet. By lending to the firm, a requirement for additional capital contribution from the partners can be limited.  I should stress that this facility is only likely to be available to firms with longer standing relationships and where they can evidence strong income generation to service the debt requirements.

Banks will always want to see good credit control, a well diluted debtor book with good quality names and good credit management with little evidence of bad debts.

Reducing lockup by shortening the period between doing the work, billing it and collecting payment is clearly cheaper than any other option when a firm requires additional finance.

Asset Finance:

On a related topic, the question should be asked  – do you need to own the physical assets used by the firm?  Some firms will qualify for the initial investment allowance on capital expenditure of upto £50,000. Beyond that level however some form of leasing or asset finance could be more cost effective and will certainly be easier on cash flow. These days, asset financiers will fund a whole variety of assets in addition to the traditional tangible ones – software – office refurbs, PI etc.A refinance of a firm’s asset base could create an injection of capital.

What experiences do you have of banks’ attitudes to lending to accountants an accountancy firms in recent weeks?

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That key term in PI policies

One of the key points I invariably highlight during my talk on ‘Avoiding negligence claims’ concerns a pretty standard term that appears in PI insurance policies. Indeed it’s as important a term in PI policies as the ‘Don’t admit liability’ clause is in motor car insurance policies.

All drivers are well aware that if they are involved in a car accident they must not admit liability. To do so could invalidate a key term of their insurance policy. The fear that we all have is that were we to breach this term our insurers might refuse to pay out – if the claim is successful.

The same point applies to PI policies.  One of the key terms states that the insured will report ‘all circumstances that could lead to a claim’.  This means ALL circumstances – not simply those cases that the accountant fears he might lose.

I heard of a case recently involving a sole practitioner. An ex client made what the accountant KNEW was a spurious claim against him and reported him to the disciplinary committee of the ICAEW.  The accountant knew it was a ‘try on’ and that he had nothing to fear so he had not notified his insurers. Whilst he was awaiting feedback from the ICAEW his PI policy came up for renewal.  He was obliged to dislcose the onging proceedings when completing the renewal paperwork.  That was when he realised that he should have notified the insurers IMMEDIATELY.  His premium was increased pending an investigation by the insurers into all the circumstances of the case – they wanted chapter and verse despite the accountant’s protestations that the accusations were without merit.

The insurers concern was the fact that the acountant had not complied with the terms of his policy and notified them immediately he became aware of ‘circumstances that could lead to a claim’.  Eventually the ICAEW agreed that the accusations were without merit; indeed the accountant had no complaint about the way the ICAEW handled the matter. His insurers also eventually stopped asking questions but the increase in his premium stayed in place for a year.  Lesson learned!

I have written a 10,000 word ebook drawn from my talk on How to avoid professional negligence claims, containing tips and risk management advice for accountants in practice. You can buy the book or download a summary for free here>>>

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