The increase might be tiny, but with inflation unexpectedly rising to 1% and the pound in freefall, accountants need to start thinking about the threats and opportunities ahead.
Despite the fact that the Bank of England is apparently considering reducing the base rate to 0.25%, it looks as if significant levels of inflation could be just around the corner.
In the eight years since the 2008 recession started, we have all become used to ignoring inflation as an economic factor. Indeed, many prices have come down over that period, although that is not the case across the board.
Even so, it seems likely that many readers’ firms will have increased their charge out rates by anywhere between 25% and 100% over that period. In effect, we have therefore taken advantage of the economic doldrums in which we have found ourselves. Looking ahead though, times could be tough.
Our businesses are generally pretty simple. We provide services to clients for which we charge either fixed fees or amounts based on time taken. Usually, we can set our own charge out rates and many clients will accept these at face value. Realistically though, as times have been tough, it has been harder to keep recovery rates at anywhere near 100%.
Expenses typically comprise two elements. First, there are labour costs, which are always likely to be substantial in this kind of business. However, compared to the increases in charge out rates over the last decade, they will typically only have gone up by a very small proportion.
In fact, it would not surprise this writer if the majority of those reading this column have been in a situation where the next pay review will be based on a zero increase for those that are not being promoted or showing exceptional performance.
Secondly, ignoring those who work from home or own commercial properties, the rest have to pay rent.
If inflation gets back up to even 5% then problems will begin to arise. If it hits double figures many accountants could be struggling for survival.
The problem here is that clients are likely to resist increases vehemently, move elsewhere or in some cases go out of business. Landlords will charge what they can and there must be the expectation that they will at least expect inflationary rises.
That leaves employees as the unknown factor. Once they realise that the market is buoyant and by moving to another firm it is possible to get a massive pay hike, many will take the opportunity.
The consequence is that either we will be obliged to offer substantial pay rises or start recruiting, which is a very expensive process. This could be exacerbated if we are unable to recruit migrants from the European Union, thus reducing the employee pool at a time when salaries are rising.
For better or worse, it seems certain that there are exciting times ahead.