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Sift LTD

A ticking time bomb for clients

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However bad the last year might have been, increasing inflation and the ending of government support could spell curtains for many clients.

20th May 2021
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For many accountants who can remember back that far, a large class of clients at the beginning of 2020 might have had a relatively similar profile:

  • They bumped along making modest profits.
  • In some years, even that was a little too much to hope for.
  • As a result, they were constantly supported by bank loans.
  • These were secured not only on any company assets but also those of directors, most worryingly their homes.
  • Where business is seasonal, they periodically also dipped deeply into overdraft facilities.
  • They were slow to pay creditors, including the long-suffering accountants.

Does this sound familiar?

Where this applies to clients, it is very bad news. When it relates to your own practice, it is much worse.

Roll forward 15 months and the situation is far, far worse. News this week about a doubling in the rate of inflation will have added to the concern.

In addition to all of the underlying issues that historically threatened the long-term future of such businesses, they are now suffering from the ravages of a pandemic (and, in many cases, problems associated with the United Kingdom’s departure from Europe).

To the list above we can now add reliance on government schemes.

  • Large numbers of staff may still be furloughed.
  • Those with premises have been enjoying a rates holiday.
  • In some sectors, they will be benefiting from reduced VAT rates.
  • The bank loans will have been supplemented by any number of other borrowings under Covid-related schemes.
  • With no real choice, landlords will have deferred or reduced rents but their patience and pockets have now been tested to the limit.

At some point, this all has to end.

Can businesses with this kind of profile survive? Some will, some won’t - and that assumes nothing untoward comes into the mix.

However, if a number of economists turn out to be correct and higher inflation is just around the corner as evidenced by the increase from 0.7% to 1.5% last month, there could be carnage on the high streets and industrial parks of our towns and cities.

That is without even considering the difficulties faced by those that rely heavily for profitability on the tourist industry or selling goods to Europe and even Northern Ireland.

These days, swallowing their pride at having the esteemed status of accountants, many of our fellows now market their wares using the badge of 'business advisers'.

Boy do businesses need advising. The problem is that many of them will currently be unable to pay for the much-needed advice.

There must be a solution, but it isn’t obvious. In reality, many are likely to go to the wall and perhaps the best we can do is ensure that they do not do so owing us large amounts of money.

In this context, before the very worst happens, accountants should review their client lists to avoid large bad debts but also determine which clients or sectors might be the best prospects for future growth.

Sadly, those that specialise in certain industry sectors such as leisure and hospitality, travel, some areas of retail and possibly agriculture may even need to think about re-basing their practices to take on board more professionals and, if they can find them, logistics and online-based clients to secure a calm, prosperous future.

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Replies (2)

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By AndyC555
24th May 2021 12:14

"they are now suffering from the ravages of a pandemic"

No they aren't. They're suffering from the ravages of the lockdowns.

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By ksagroup
26th May 2021 09:56

The can will be kicked down the road for years with debts strung out and government support. I do not expect many companies to "got to the wall" but slowly downsize and "draw their horns in" That said I do see a lot of personal debt and insolvencies

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