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Brexit
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Leaving the single market – an accounting analogy

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19th Jan 2017
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How should accountants view Tuesday’s announcement that Britain is going it alone?

Theresa May’s decision that we would be leaving the single market was dramatic and will have consequences that will only become apparent some years from now.

I thought that it would be interesting to look at the decision in a way that would be easily intelligible for those in the profession.

Put simply, the government has decided to sack its largest and most lucrative client.

This isn't as easy as one might imagine. There are very few firms of accountants who would say goodbye to their main source of income full stop. They would also rarely be in the same kind of positions since the guidelines from our relevant accounting body frown upon a situation where around 50% of business came from a single client.

In passing, it is worth noting that most European countries export a fairly negligible 6%-7% of their output to the UK.

So what will be the consequence if we took action of this type in our own practices? In reality, unless we had already gained equivalent business elsewhere, the first step would be to sack somewhere in the region of half of our staff, letting a significant number of partners go at the same time.

On the other side of the coin, once staff saw that the firm had lost over half of its income and many of their colleagues were getting jobs elsewhere, they too might jump ship on the basis that it was likely to be sinking anyway.

To compound the problem, having made this decision so publicly, all of our other clients and those who might consider utilising our services in future would be well aware of the situation.

They would begin to wonder whether they too should go elsewhere or, at the very least, negotiate significantly better fees.

To spice things up, all of our rivals would also have been made aware of the decision, ensuring and they would be circling like vultures not only to take the work of the client that we had just waved goodbye to but also others, spotting what they would see as real opportunity to benefit from our perceived weakness.

It is also possible that prospective clients who had not previously worked with us might decide to jump across knowing that we would have the capacity to service them and might be quite desperate for their services i.e. would be willing to offer very competitive terms.

Readers might argue that this is actually more akin to giving up an audit while trying to keep the valuable consultancy work around the edges. From bitter experience, we've probably all seen that strategy fail, as the consultancy work usually disappears fairly soon after such a strategic decision, which in any event would usually be taken by the clients not the accountant.

According to Mrs May, this is exactly what the country has asked her to do and therefore she is merely following instructions. Whether everybody who voted for the UK to leave Europe expected them to unilaterally step out of the single market is a moot point.

Now that so many more people understand the implications of that fateful vote last summer, I would love to know whether a second poll today would come up with the same outcome in the same proportions. There has to be a possibility that having seen the new government in action, the vote would be overwhelmingly in favour of this move. However, we will never know.

The punchline to this article may take five years to appear. At that point, there has to be a chance that we all conclude that the best way forward is to sack our best client.

Replies (5)

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By Vaughan Blake1
19th Jan 2017 13:01

I think that the business analogy is more that of a firm leaving an onerous and greedy franchise arrangement. One that takes more than a fair share of the firm's profit. One that imposes many restrictions on a franchisee whilst at the same time forcing it to purchase equipment, supplies and software at premium prices.

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By Knight Rider
25th Jan 2017 14:43

It's difficult to think of anything less lucrative than the EU. £350M a week for some plaques and flags.

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By Mike18
27th Jan 2017 13:00

Imprudent Accountant presents the evidence all of which suggests 'sacking your largest client' is disastrous, and then suggests the advocates would probably do it all again nevertheless. Well, leaving the European Union was an act of economic self-harm carried out for dubious political reasons. Knight Rider seems attached to 'alternative facts' and is hopefully not still waiting for £350m a week to find its way into the NHS.

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By henscu
27th Jan 2017 13:34

The trouble is that the debate is now so polarised that anyone who suggests caution is seen as a closet remainer, and leavers are so paranoid about sabotage that they are throwing caution to the wind...

Best place for sane information is Dr Richard North's blog eureferendum.com. He's the architect of Flexcit, a plan for a carefully staged withdrawal from Europe.

However, due to leavers' paranoia, anyone urging caution has been thrown to the dogs, including Dr North and even Christopher Booker of the Telegraph, both of whom are ardent but level-headed Brexiters...

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By Knight Rider
30th Jan 2017 11:31

This analogy is very flawed. The UK's largest client is the UK itself. Only some 25% of GDP is attributable to exports and most of these are to countries outside the EU.
The deliberate obfuscation of political integration with trading arrangements was a feature of the remain campaign. Had they articulated an optimistic and positive vision of Britain's involvement in the EU rather than scaremongering about job losses the outcome may have been different.
We are not sacking our largest client but making some changes to the trading relationship with our smallest(not necessarily the best)client with whom as a result of sterling's devaluation we now have a greater cost advantage than before.

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