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To what extent are practitioners willing and able to help SMEs with financial management in the current environment

I posted this question within the thread "coping with nightmare clients in the recession and it was suggested I repost under a new title - so here it is:

An insolvency practitioner I know estimates that 80% of SME insolvencies are caused by poor financial management and in most cases this is caused by a skills gap in the finance function. This is arguably born out by a survey that was mentioned in Accounting web http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=193332&d=1025&h=1022&f=1026&dateformat=%25o%20%25B%20%25Y

Often the engagement letter will be restricted to year end accounts and taxation. However some accountants market themselves as "business advisors" and many SME owners rightly or wrongly see their accountants as the fountain of all financial knowledge. There may be no legal responsibility, but is there a moral responsibility to guide the client in the right direction? Alternatively you may even feel that there is a risk of being construed as a shadow director - so want to stick strictly to the terms of the engagement. Commercially, giving the client a steer in the right direction may be seen by some clients as proactive and lead to recommendations, whilst others may see it as interference.

Many practices' core business centres round year end accounts and tax services and some day to day financial management skills (eg: cash management, forecasting, business planning) may be outside the comfort zone of some practitioners. Also the charge outs rates in some firms may preclude cost effective provision of FD services.(i recently heard of one firm charging its partners at £1,700/day for FD services).

Taking the above into account how far do practitioners go in helping their clients with financial management?

Regards

David Lewis
http://www.camroseconsulting.co.uk/accountancy%20firms.html

David Lewis

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By Anonymous
05th Mar 2009 11:52

just curious David so I checked out your website
David - could you let us know what sort of services you firm provides?

Would you by chance be helping to fill the void you have helped identify among fellow accountants?

Has this post generated any leads yet?

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By eddybee
05th Mar 2009 11:27

Paul
I am glad that this thread has been of interest

Some accountants portray themselves as business advisors and business owners often look to their accountants as the main source of advice on matters financial. If in this situation, the accountant does not recognise that the client needs an FD, then it in my view raises concerns about the quality of advice being given.

My comment about safeguarding interests might have been a little harsh - another reason may be that accountants aren't taking the TIME to consider the client's financial management needs.

Whatever the reason:
- many SMEs have financial management needs that are not being fulfilled
- rightly or wrongly, most non accountants would expect accountants to give businesses a steer in the right direction (see http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=193332&d=1025&h=1022&f=1026&dateformat=%25o%20%25B%20%25Y) and this may not be happening as often as it should.

Regards

David Lewis
www.camroseconsulting.co.uk



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By Anonymous
05th Mar 2009 10:44

Can't see much change myself
Its hard to generalise but i think for all those accountants that only see their clients once a year this isn't likely to change much. Those who are more involved on an ongoing basis will continue to do so and probably more so. Being more hands on with a client makes for a different relationship and this may not be to eveyone's liking.

I think the suggestion that 80% insolvencies are caused by poor financial management is stretching it a bit. Many of those firms even if they had spotted danger earlier would have struggled to do much about it. Also isn't overtrading a problem for many SMEs?

Many SMEs would do well to engage a decent bookkeeper never mind an FD to assist with day to day matters. 'Simple' things like credit control can often be neglected with disasterous results!

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By eddybee
05th Mar 2009 12:00

Arthur/Bookkeepers
I agree that getting the basics right is essential and good bookkeepers are vital for getting to where the business has been. However there are other skills needed to help assess where the business is heading.

There are also benefits in having someone to monitor the bookkeeper (most of us have had to correct the errors of lousy ones), give experienced problem solving support and to be able to discuss issues on an equal footing with the MD.

The extent to which a part time FD would be needed will clearly vary with each business - clearly good bookeeping/accounting staff would keep the FD's time to a minimum.

Arthur regarding your second post - my contact details on my web site if you want to speak.

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04th Mar 2009 21:17

David
This was an interesting thread but I feel some of your comments are out of order.

in particular "I suspect that many small practitioners (dare I say most) don't. Clearly all practitioners will seek to safeguard their own client base and reputation"

The reason is that almost all small practioners that I know refer when they are out of their depth. It is more likely that they do not recognise that there is a need for an FD.

Steven Holloway's comments and model are similar to many small and not so small practices.

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By eddybee
04th Mar 2009 18:19

Here is the consensus - but what's actually happening out there?
I am pleased to see this thread has been included in Pick of the Week and I thought I would review the various comments:

So far the view received seems to be that the provision of FD services is not likely to fit with the practice model and could lead to a compromised relationship with the client. There also is a consensus that freelance FD services can plug the skills gap.

I wonder how many practitioners actively refer clients to a part time FD service when a skills gap is identified? I suspect that many small practitioners (dare I say most) don't. Clearly all practitioners will seek to safeguard their own client base and reputation. Some may see the introduction of another accountant as a threat, although properly handled it will enhance the practitioner's reputation and maintain client loyalty.

Where clients are left with a skills gap in finance they have an increased risk of financial distress. Whilst it is likely to be outside the limits of engagement letters, I would hope that all professional accountants / "business advisors" will (where they are unwilling or unable to provide the necessary help) do what they can to steer their clients in the right direction.

Regards

David Lewis
http://www.camroseconsulting.co.uk/small%20businesses.html

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03rd Mar 2009 14:01

INTERIMS

as an interim myself dealing with SME's I can see now a situation where companys are downsizing finance - which may not have been efficient value-add or near fit for purpose. resources are now lightweight for the business, staff are underskilled for their new remit and training is not availbale. Promotion from the bottom say p/l to finance manager really does nothing for the controls and mitigation of commercial risk

we - interims - fill the gap so CA partners do not charge SME £ 1700 /day [ nice work !!].

short term roles - advising clients or even bring ing systems up to date, a degree of commercial oversight and on the job training leaves these new finance functions at least skilled to handle day-to-day on a timely basis, and have some sort of info available when the partner arrives to do the accounts Cheap at the charge out for short period assignments. Of course the additional added value comes with the value-ads elsewhere within the business

so Davids comment below re " An insolvency practitioner I know estimates that 80% of SME insolvencies are caused by poor financial management and in most cases this is caused by a skills gap in the finance function " is accurate and can be evidenced by my comments in the first para. as an aside, post last recession it took a long time for finance to restructure + add back in the essential skills, meaning that those that survived were actually close to going under [ when in fact they should have been well on the up curve ]

interesting thread


AR
[email protected]

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By eddybee
03rd Mar 2009 11:54

Part time FDs
I have no doubt that a part time FD is the solution for many businesses.

Whilst I have no firsthand experience of the networks mentioned by Steve Lloyd, it may be worth bearing in mind that some FD organisations are marketing networks or franchises and a premium is paid primarily for the name/marketing spend. Others seem to be cohesive organisations where people with different skills can be called on if necessary and in my view you are likely to get more bang for your buck - I would regard FD Solutions ( http://www.fdsolutions.uk.com ) as falling into this category.

The sole practitioner option is likely to be less costly than the FD organisations, generally the differences are similar to sole practitioner accountancy firms compared with their larger more well known counterparts and it is advisable to get recommendations/references.

I have been a sole practitioner providing financial management and project services for nearly 5 years, whilst I have had referrals from medium to large accountancy firms, I have found smaller firms extremely reticent to refer their clients and from conversations I've had it seems I'm not alone.

There are benefits to practitioners in introducing part time FDs see http://www.camroseconsulting.co.uk/accountancy%20firms.html whilst I would like to build relationships with proactive smaller practices and would be happy to hear from them, I would urge all practitioners to think about the financial skills gaps in their SME clients and where necessary help them find SOMEONE who can fill the skills gap -even if it is not me.

Regards

David Lewis
[email protected]

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03rd Mar 2009 08:54

Clearer question this time David!
I think, however, that you have answered most of it yourself. The limiting factors for me (and I do have a relevant background as a corporate FD) are as follows:

The cost of my time to the client and the risk of non-payment for me.

My time availability given my business model was built around the volume annual accounts and tax compliance cycle.


As to the moral obligations (which you seem to emphasise in both postings); I think for accountants to step beyond the normal duties of skill & care is frankly ill advised as it can lead to a compromised relationship and poor advice.

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02nd Mar 2009 22:27

Use a freelance FD
As an alternative to a firm of accountants, there are many experienced Finance Directors making themselves available to SMEs on a part time basis. They have all the necessary skills to help the businesses, none of the conflicts faced by practicing accountants and are usually considerably cheaper.

There are several national networks and numerous sole practitioners:

www.secantor.com
www.cicerofm.com
www.ciceroguides.com

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