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Comparing the financials of two clients

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Bit of a random one...

I have two clients in the same industry, they do not know each other and are based two hours apart. Their margins are very different on very similer turnover, one makes a lot of money and the other just about breaks even. 

For my own purposes I have prepared a schedule comparing the two detailed P & L's.

Question - Am I allowed to disclose this to the client as long as I obviously do not disclose the name of the other company? Am I doing anything wrong here?

Replies (19)

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By Accountant A
06th Aug 2019 19:21

If the information is not in the public domain (eg Companies House) then no, it shouldn't be disclosed, would be my view.

If you are a member of a professional body, you could contact their ethics helpline. I'm maybe being a little oversensitive.

Is it not obvious, from from first principles, for the business that only breaks even where their problems lie? You can't pretend that you don't have the knowledge you have but you really should be operating some personal "Chinese wall", if we are still allowed to call it that.

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By atleastisoundknowledgable...
06th Aug 2019 21:25

At my first firm we presented to each of 3 clients (who didn’t know each other) their P&L (£s and %s) against an average P&L of the other two, using only % not showing any £.

They could see how they were doing with their %s, but we were not giving away a huge amount of info.

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By Tax Dragon
06th Aug 2019 21:42

Two hours apart? That's, what, Notting Hill to Felixstowe or Carlisle to Manchester. Any reason the business should have similar results?

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RLI
By lionofludesch
07th Aug 2019 09:14

As A says, you can't pretend that you don't have the knowledge that you have. Just take care that the advice you give doesn't disclose too much.

I would try to give advice which doesn't disclose any figures. Not always possible - it depends where the differences lie. Just do your best.

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Replying to lionofludesch:
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By atleastisoundknowledgable...
07th Aug 2019 09:17

Something like “GP seems reasonable / what I’d expect”

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Replying to atleastisoundknowledgable...:
Caroline
By accountantccole
07th Aug 2019 10:25

This is how I'd approach it - "other businesses in your industry seem to be getting a GP% of about X...."

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Replying to accountantccole:
Hallerud at Easter
By DJKL
07th Aug 2019 10:52

HMRC's traditional argument re investigations- the average (insert trade) manages a GP percentage of Y (insert).

The point that could be made to the inspector was the average HMRC inspector was 5 ft 10 inches but he was only 5 ft 8 inches tall.

With certain activities comparing margins can be really fraught with danger, one has to know how both business entities operate inside out. I have a suspicion that as fewer companies require audits these days accountants have fewer notes re how operations actually take place (we can all likely remember pretty detailed permanent notes that needed reviewed and possibly updated each year)

And then we try to compare the engineering company established 70 years ago, which has a stunning profit margin as all the kit carries virtually no depreciation charge, with the new business ,created 4 years ago, which has vast depreciation charges applied depressing profits.

And then you get into questions concerning comparing one with in house labour (and its allocation between say manufacturing and administration is always subjective) and another which contracts out all assembly work and these costs flow through direct costs.

Some industries one can compare, with caution, e.g.retail etc , other industries you really need to understand the detailed nuts and bolts of the operation to offer anything meaningful to the owners.

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Replying to DJKL:
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By Tax Dragon
07th Aug 2019 11:57

Excellent comment.

Even with retail, I would underscore your point that caution is needed. Just ask Mike Ashley.

And don't forget location, location, location.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
07th Aug 2019 12:29

And of course non location internet retailers.

I have just said goodbye to one such business as they head to their new accountants, it has goods manufactured overseas, imports these to UK, goods held in UK based logistics facility that holds the stock and despatches (for a fee) the items sold on the online platform- over the years exchange rates, critical mass of sales fluctuation relative to stock holding (charge per month per pallet) etc has significantly impacted margins and profitability, swinging from okay profits to losses.

Retail has always been tricky- I spent the early 1990s as FD to a private company involved in retail fashion (We had 8 Benetton Factory outlets, 1 Benetton proper outlet plus A N Other shop doing designer fashion) and it moved from decent profits to decent losses in the blink of an eye (1990-1994).

We had no Belgian complications though we did do have importing from Italy via agents back in the days when vat needed to be paid upon import before the goods came to us- we could soon be back with that system- maybe I should dust down my stale knowledge re importing to take advantage of the gathering storm.

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By NewACA
07th Aug 2019 13:16

It may only be worth bringing this up if you have an explanation for it. If you cannot explain the difference, the client may just get annoyed with you - I guess it depends how you do it.

EG: the average GP% is XX%, whereas as yours is WWW%, because you haven't outsourced the manufacturing - or what-have-you, is that something you might consider? Would you like us to do some more research for you (paid of course)?

Alternatively, you could give them the GP% difference, and ask them if they want you to look into it. It may be that they can already answer your question as to why their GP% is lower, and might be happy with the reason and do not want to change.

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By LostinSuspense
07th Aug 2019 13:49

In your own way, you could if decided, do a like for like comparison of the businesses with percentages.

However just because the profits are higher in one business doesn't mean that company is doing things properly. It could be a 'tight fisted' owner who doesn't spend any money unless they absolutely have to or that they have no idea exactly what they can and cannot claim as expenses for the business.

Is there an ulterior motive, they maybe want a mortgage, so are making their business look as profitable as possible to boost these chances?

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By AdShawBPR
09th Aug 2019 10:36

As long as the information is completely anonomised and the identity of the other client can't be discerned from other sources, I can't see why the numbers can't be used as a comparison. If you're talking to Airbus, probably best not to share Boeing's numbers! If you share your client list then you'd need to be careful but if its a fairly generic business I can't see a problem. You could round the figures so not to the penny and/or lump various cost or sales categories together. Perhaps, as others have suggested, using high level figures and percentages would be the best way to go. It's the message that's important not the actual figures.

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By Nebs
09th Aug 2019 10:38

Everyone is concentrating on the business with the lower profits. Maybe the business with the higher profits is money laundering.

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Replying to Nebs:
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By Tax Dragon
09th Aug 2019 11:15

Nebs wrote:

Everyone is concentrating on the business with the lower profits.

Are they?

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By indomitable
09th Aug 2019 11:17

No you shouldn't be giving detailed information about another client's business.

There is something called 'benchmarking' and you should be doing this. Comparing one business with only one other is not a good comparison anyway and can give a false impression.

There is even software out there that does benchmarking

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By Andy Reeves
09th Aug 2019 11:23

Be very careful, particularly if you act as Registered Office for either or both of these companies, as that could be a way for the client to work out who you are talking about.

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By lisaknowles
09th Aug 2019 11:57

I would do as others have suggested and maybe do a general 'another company in your industry achieves margins of x%' or whatever compariative you want to mention.
Do you know if your client is unhappy with their profits? Some people are happy to tick over a little ahead of breaking even. Another consideration is that they may be choosing to operate more ethically in terms of employee pay and responsible sourcing of materials, and the more profitable company may be the opposite.

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By David Gordon FCCA
09th Aug 2019 12:07

Short answer: NO
Under no circumstances except and unless you have the client's written permission may you divulge client specific information.
Most of us have more than one client in a particular trade.
What you can do is look at the failing client's figures and ask him why £x is so high, or similar.
Or visit the client in order to observe him in action. Keep in mind the following example:
years ago I had two brothers as clients. They had similar businesses, not more than fifteen minutes walk from each other in similar roads.
One of them had a most satisfactory business life, the other subsisted in misery, finally closing. When I visited the answer was clear. In the first shop I felt like a valued customer, in the second through no conscious fault of the proprietor, it was depressing. That is how life is. Some people can play the piano, some despite hours of practice simply are not able.

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By [email protected]
10th Aug 2019 09:21

I think you need to compare the struggling client against "Industry norms", although, as others have noted there can be a million and 0ne permutations of how the financials pan out.
Better to identify specific issues that can be addressed within the company - some will jump out!. Benchmarking against another company is useful but to be effective you need their co-oporation as well as permission for anything specific, otherwise your back to generic data from published results (no one can stop you benchmarking against published accounts!)

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