Know your client: Review your pandemic-hit clientsby
Many clients have been struggling through the pandemic and, with reliefs due to end soon, accountants should be reviewing portfolios as a matter of urgency. If we don't manage our clients carefully, their problems could become ours.
'Know your client' has long been a mantra for accountants. Until now, its primary purpose has been to ensure that no dirty tricks were going on behind-the-scenes with prospective new clients.
Acting for criminals and money launderers might potentially be lucrative but could also land professional advisers in hot water, prospectively leading to disciplinary action, financial penalties and, in extreme circumstances, the threat of prosecution.
It is probably fair to say every accountant is aware of their obligations but some take them a little more seriously than others.
Those who have worked for larger firms are often driven to distraction by the tireless efforts of compliance teams that seem designed to annoy professional staff, without necessarily adding anything to the top-line, bottom-line or, for that matter, providing much additional assurance that the new clients are legit.
Frankly, at their worst, some of these jobsworths seemed interested in nothing but ticking boxes.
However, this article is addressing a different coronavirus-led issue that could be of equal significance to your practice and, in extreme circumstances, might even save it from disaster.
Businesses may not recover from this nightmare
Over the last 11 months, our clients have entered a surreal world in which few have prospered, many have chugged along perfectly well if not as profitably as in the past, and significant numbers have been thrust into the kind of nightmare from which it might be impossible to recover.
It is hard to imagine the hardships faced by many of those in the leisure and hospitality sectors, while a good number of other people-focused businesses that require face-to-face contact with customers or clients will also be struggling to stay in business, propped up by nothing more than savings and loans.
There has not been a great deal of coverage regarding business closures by impatient bank managers but surely such outcomes must be in the offing.
If the manager had lent a significant sum to a business that is currently closed down with no prospect of returning to profitability in the foreseeable future, why on earth would they keep it afloat when even the interest on the loans is unlikely to be repaid, let alone the principal?
Following similar logic, many of us will be carrying debts from clients who are insolvent in all but name, only supported by generous landlords combined with government financing and support in the form of furlough payments and rates holidays.
'Audit' your clients
In the good old days (less than a year ago but it feels like a lifetime) if clients did not or could not pay our fees, we would refuse to carry out further work and eventually call in the lawyers then bailiffs.
That seems drastic in the current circumstances but, if we are not careful, clients’ financial problems might become our own not too much further down the line.
Therefore, it is incumbent on everybody involved in the management of a practice or, for that matter, finance or managing directors of businesses in other fields to carry out a detailed 'audit' of those with whom they do business. In some cases, this could yield surprisingly good news as inventive clients have managed to buck the trend and transformed their trades into profit-making businesses.
What businesses really need
However, what we really need to look out for are those that are already struggling. Unless Rishi Sunak announces significant additional funding packages with extension to rates holidays and the Job Retention Scheme, potentially combined with even more loans, many of those that have been bailing out even long-established businesses are bound to go under.
The situation is likely to be even worse for anyone who had the misfortune to set up a business in the last year or two and was still trying to build a customer base.
The next steps will not be pleasant, as we face the prospect of phone calls explaining that, much as we would like to assist, our services will no longer be available and we should be grateful if the outstanding fees could be settled post-haste.