How to advise your clients if they are struggling financially

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Keith Steven of turnaround and insolvency practitioners KSA Group Ltd sets out how your accountancy firm can help clients, avoid sudden closures and protect income. This blunt article is based on his 16 years turnaround experience and over 30 years of running SME businesses. Many accountants won’t like the content of this article, but his view is that all professionals need to provide services and support to help SME’s through tough times, not just charge an annual fee to tell them what happened circa 12 months ago!

“Many accountants tell us that they have very few insolvent clients and the national average shows that well less than 1% of all VAT registered companies become insolvent.  However, it is usually a shock when a client suddenly ends up in administration or liquidation, or when sole traders go bankrupt.

Suddenly, you have lost a client and the ongoing future income, you have lost any outstanding fees due from the client and you will almost certainly not recover the arrears. You may ask yourself two questions

  1. Could YOU have done more to help (and earn fees from this work)?
  2. How can you help your clients and avoid the shock of the sudden insolvency?

There are a number of ways you can help clients and your business, but they are proactive and require being open and blunt with your clients.

Warning Signs;

KSA Group has a whole section on its company rescue website that sets out the dozens of warning signs that we have learned to spot over the years. Many are not the usual liquidity or cashflow warning signs. Most are displayed regularly in companies or by their directors, that we advise or work with.  

For example do your clients blame the bank or slow debtors for their problems? Do they have regular management accounts? Do they know what their business gross margin is? Are they always late with tax returns?

We strongly suggest that you read these warning signs and keep them as an aide memoire, or you can get a free copy of our Professional Toolkit which sets them out in an easy to refer to USB Stick.

Diagnostics: when you have spotted these warning signs it is worth jotting down some notes and referring to the last filed accounts. Shouldn't you talk to them about these warning signs? It can be over a cup of tea at their premises and can open doors to more work and better understanding of the business for both parties.

Compliance with HMRC;

In many of the rescue or insolvency cases we work with the company has very poor compliance with HMRC. Failure to pay the debts owed is one thing, we can fix that with company voluntary arrangements.  However, if the client has, over time, failed to file VAT returns, Corporation Tax returns, P11D’s, self assessment and is always late or getting surcharges then HMRC take a dim view and the most likely outcome is liquidation. Many HMRC officers will regard this as wilful failure to comply and even good rescue cases can be rejected if compliance is seen as poor. 

Perhaps you could talk to all clients where there is poor compliance and set out a simple tick sheet for each month of the year? That way you or your staff can email or write reminding them of the need to meet these important milestones. A simple diary system can be set up in Outlook for each client.

Makes you look very switched on and helpful to your clients. If they don’t respond on time they are displaying distress and perhaps a meeting could be arranged where you ask how your firm can assist?

Directors of SME’s are often very “time poor” but could afford to pay you a few hundred pounds to handle returns or PAYE Schemes or P11 D’s for example. Simple and cost effective software is easy to obtain for many of these reporting requirements.

At the initial meeting you can offer other simple tools, many companies run on historic information. We believe “cash is king” as we are often called in when the cash has all gone out! Perhaps a daily cashflow spreadsheet should be suggested.

You or your staff can help them set this up in an hour or so – another modest but powerful service you can charge for. Then each day or week the client can update and email to your firm

If the cashflow looks like it has a hole in future then you can set out the warning signs and advise them on the option. Perhaps you can arrange a time to pay deal with the HMRC or major suppliers. A forecast may be required to back this application for further time to pay up. Again this is billable time but more importantly you can keep tabs on the daily cashflow and how YOUR FIRM will get paid.

Sell them management accounting services: many accountancy partners say to me, “ we are not set up to produce monthly management accounts” I reply with one word: WHY?

Your firm produces annual accounts and tax returns often the client’s accounting information is very slow or late in being produced. We work with many firms who produce management accounts who provide hands on accountancy services MONTHLY for their clients on an outsourced basis. This is then fed into the annual accounts. Less time chasing and more time spent adding value to the client relationship.

Once again, if the monthly Management Information (MI) is showing cash running short or working capital problems ahead, then you can arrange to meet the client and say, “we have spotted that cash is looking difficult in 1-3 months time, shall we meet to discuss how we can help”. Coupled with assessing the other warning signs it could be a great way of getting closer to your clients.

What if insolvency is likely?

Many firms will provide free initial diagnosis of the issues, set out the available options and in our case we always report to the company in writing as to their strategy and options.  If we are appointed to assist the client we will provide work to your firm for forecasting, compliance and so on. Of course the sooner help is asked for the wider range of options are available.

HMRC Debt Collection; we are seeing a much more aggressive approach by HMRC. Stages of recovery have been slashed and they are moving towards distraint and winding up petitions much faster than for the last 3 years. If your client calls and says they have a tax problem and a letter has arrived from HMRC stating it will act. Tell them this. HMRC are now acting faster and winding up companies sooner. If it says they will issue a winding up petition in 7 days it will!  Believe it or not we see many clients who think that it is just a threat that they will not go through with.  Remember they issue hundreds of winding up petitions and the cost to them is low per case. 

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