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 https://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
Replies (10)
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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?
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!
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.
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
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.
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: