Good clients rarely exist, you have to make them

How do you define what a good client for an accountant is? What personal qualities would they have, what type of business would they run, how much (or little) work would they create for you and your team, and how demanding would they be of your time?

Your definition of what a good client is will differ from all other accountants but it’s fair to say that you’ll already have clients you prefer dealing with and other clients who, when they want to speak with you, send an unnerving shiver down your spine.

Client personality aside, a good client is most likely to be the one whose demands of you match your practice’s capacity and ability to deliver.

Know thyself

Perhaps I have been binging on my “Wall Street” Blu Ray too much recently but Sun Tze, the Chinese general, military strategist, writer and philosopher, believes that the idea of knowing who you were was of paramount importance to achieving your goals.

He said that you should “know others and know thyself and you will not be endangered by innumerable battles”.

Historians and scholars have attributed various interpretations to this phrase over the century but the interpretation I personally prefer is that you’ll never be prepared for danger if you don’t know your own strengths and weaknesses.

For the purposes of this article, I’m going to transpose that “danger” as meaning an inability to effectively service your clients in either the way they wanted and/or the way that you promised you’d look after them.

Your practice’s strengths and weaknesses

The only person in this world you can be truly responsible for is yourself.

Likewise, the only person responsible for your practice’s strengths and weaknesses is you – the owner of that practice.

It was your decision and your decision alone which range of services you offered to your clients and the way you described your level of service to clients when you pitched them for business.

Likewise, it was your decision and your decision only to choose which staff (and how many) you would employ to support you and the software with which you run your practice.

When you first met your current clients before you signed them up, how “hard” did you sell your practice and its abilities?

Probably very hard – you wanted the business after all. And I am willing to bet that not a word which passes your lips you didn’t completely believe in.

At the face-to-face meeting, was there a question your future client asked you which you didn’t say “yes, we can do that” to?

But were you describing the services and the level of attention as your practice was then or as you wanted it to be at a future point in its development?

Particularly in newer practices, there is a dash for growth as owners seek to maximise capacity and generate the cash required to build a team around the owner.

In many cases, this means that practices, whether new or old, often have too many clients on their books meaning that their ability to deliver the level and quality of services they had promised at sign-up is severely impaired.

The point I am making is that all of the decisions you have taken to date have created something of value and of worth – that is, your business – your practice.

However some of these decisions will have left you underprepared for “danger”.

The real life consequences of accounting “danger”

For an accountancy practice, “danger” can mean three things:

  • you become distant from your clients,
  • the quality of your work suffers, and
  • you make your professional life and your staff’s professional lives almost unbearable.

First, “danger” might mean that you’re not in touch with your clients as often as you would like or they would like. Survey after survey has shown that clients are more likely to leave for another accountant if they feel ignored or neglected.

With up to 36% of clients looking to switch at any one time, the “danger” to your business is that more than a third of its revenues may disappear over the coming year which you’ll need to replace.

Second, “danger” might mean that you’re working past your practice’s capacity limit – you have too much work on for you and your team to cope with.

The problem here is that you and your team then adopt a survival posture – doing work only when it needs to be done and in a hurry. One example of this might be logging into your client’s Xero account six weeks before the CT600 is due and before accounts must be filed at Companies House.

This creates almighty scrambles for you and your team to improve often inadequate financial records to HMRC’s barest minimum quality level meaning that many opportunities to save clients money on their taxes are missed because of misclassifications of expenditure items.

Last, the third major consequence of operating in survival mode is on your and your team. You’ll be exhausted – account, file, repeat, account, file, repeat – and probably desperately unhappy.

The staff working for accounting firms in general (not specifically at yours) are among the most unhappy employees in the general workforce and, in many cases, it would not take much to persuade some staff to jump ship to another firm in the hope that they’ll find something better, less stressful, and more varied.

If any of this sounds familiar or you could envisage it happening, there will be no such thing as a “good client” or a “bad client” anymore.
There’ll only be “unmanageable clients” and “completely unmanageable clients”.

To find and keep good clients, you need to know thyself

For a client to be “good” and for you to be a good accountant to your client, there has to be a fit.

I’m excepting personality from this discussion – if you’re in a face to face meeting with a potential client and their personality makes your skin crawl for whatever reason or they laugh too hard at their own “jokes” too many times during the conversation, be the bigger person, shake their hands, and walk away from the deal.
Earlier in this article, I mentioned how you and you alone were responsible for your accounting firm’s capacity and its range of services.

If you are finding that you have too many “bad clients”, I humbly suggest that what makes them bad is that they are giving you too much work to do:

  • for what they pay you and/or
  • your and your colleague’s ability to juggle that additional work with your general workload.

There is clearly a bad fit here – it’s not working for you and it’s not working for them.

What’s to blame? In many accounting practices, it’s often the lack of an efficient working routine.

Instead of preparing period ends, year ends, and Self Assessments with six or less weeks to go before the deadline, can you reorganise your practice to split the work over the course of a year?

For example, if there are five of you servicing 200 accounts, you could task your colleagues to log into each client’s Xero accounts once a month to check for certain issues like:

  • cash in the bank,
  • level of indebtedness,
  • average days taken to pay an invoice,
  • when the last invoice was issued, and
  • when the last bank reconciliation took place and how many outstanding items need reconciling.

Each time your colleagues checks into your client’s accounts, task them to run a series of reports. The results of those reports will indicate how much individual attention each client needs to ensure that their financial recordkeeping is up to the required standard.

When issues are spotted, encourage your colleagues to call the client, explain the nature of the problem, and offer a solution.
If those solutions are ignored month after month, put the client on warning that, if they do not keep their financial records up to date:

  • your ability to save them as much money as possible on tax will be compromised and
  • you’ll be closing their account at year end, period end, or at the end of the contract they’ve signed to access your service.

By doing this, the amount of remedial work you and your colleagues will need to do when preparing their accounts or readying their submissions to HMRC or Companies House will be minimal.

If you have five colleagues and your firm serves 200 clients, this means that each colleague will need to log into 10 clients’ accounts every day to run reports. In the early days, this will take up a fair amount of time but, as your clients start to follow your instructions, that workload should decrease month on month.

Your regular communications, if occasionally nagging in tone, will be appreciated by your clients because it actually seems like you’re paying attention to them. You’ll be a “good accountant” to them.

Their acquiescence to your colleagues’ demands to keep their books up to date will reduce the overall volume of work required per client as well as spread that work out over the course of 12 months. They’re now much closer to being a “good client” for you and your team.

The benefits of introducing a more defined and regular structure to your and your colleague’s workloads and to minimum standards of interaction from a client are many.

Instead of being chased by clients for their accounts or to find out their level of tax liabilities, you’ll be able to let them know within weeks giving them time to find the cash – that benefits both of you.

You’ll break the cycle of “account, file, repeat, account, file, repeat” for yourself and your colleagues. There’ll be less general pressure when they come into work and at peak times of year.

And for you and your colleagues, there’ll be much more time to offer a wider range of services to your clients – work which will bring in extra revenue to the practice and work to provide new stimulation and engagement to your staff.

The Hindsight app

I personally know all of that which I described above – that was my old accounting practice once before I sold up.

Since selling up, my new team and I have spent 18 months developing the Hindsight plug-in for Xero.

Why “Hindsight” and not “Foresight”? It’s because the way I would have run my old accounting practice, with hindsight, is how I’ve set out in this article. Client-focused, colleague-focused, and focused on delivering the type of practice I would like to have run.

The processes I’ve described have been coded into Hindsight but, instead of your colleagues personally logging into 200 different client accounts once a month, Hindsight does it automatically every day, runs the insights on your behalf, and then assigns different tasks and/or clients to different members of your team.

If I’d had Hindsight back then, I don’t think I would ever have sold up because the app is capable of delivering what I wanted for my practice. And, after speaking with hundreds of colleagues before and during its development, I know many of you feel the same way.

I’d really appreciate the opportunity to show you around the system.

Please click here to arrange a phone call with our team or, alternatively, please click here to email us.

Adding advisory services to your accountancy practice

Ex-Beatle George Harrison said in 1970 that “for every 100 pounds we’ve earned, we got a 100 pounds worth of problems to balance it.” Anyone who runs a business will know that feeling. 

You’ve probably heard variations on this theme like “10 employees is a team, 100 employees is a nightmare” and so on. 

These phrases, as cliched as they might sound, point to an underlying truth about companies whose turnover exceeds around half a million pounds. They have becoming living, emotional, temperamental beings whose hunger for cash never seems to diminish. 

£500,000 might not sound a lot but, from that budget, the prices of the goods and services needed to fulfil orders must be factored in as must wages, commissions, rent, rates, software, professional fees, advertising and marketing, taxes, directors’ remunerations, and so on. There may be thousands of transactions inbound and outbound which have to be accounted for. 

At this point, it becomes harder and harder, even with managerial support, for owner-directors to be aware of everything that’s going on. 

If the owner-director is pushing his or her team for growth, they may be relying on earlier systems and infrastructure to handle the processing and fulfilment of orders which were not designed for these higher volumes. 

A successful push for growth often hides deep and sometimes fundamental problems within the business plan, the staffing, and the organisational structure of a company which only become visible later on and which come back to haunt it. 

Many companies bring in a part-time financial director or a non-executive director at this point but a growing number of owner-directors are turning to their accountants to operate in an overseeing and advisory role. 

What opportunities are there for your practice with advisory accounting, particularly in a world still beset by economic disruptions because of the COVID-19 pandemic? 

Why you and not a part-time FD? 

Before we look at “why you?” from the client’s point of view, let’s consider “why you?” from your point of view. 

The number of accounting firms in the UK is at an all time record high. Even though you may service sole traders, partnerships, freelancers, and contractors, the highest fees are really only available when servicing established limited companies. 

There are around 350,000 active limited companies in the UK and around 16,000 accountants. In other words, there are around 22 limited companies for every accountancy practice in the UK. The only similar professional services industry with this level of competition is the recruitment sector. 

Although only one in five choose their accountant by the price they charge, sole traders, partnerships, freelancers, and contractors have much tighter budgets in general.  

Their current accountants will advise them to convert into limited companies because of the tax advantages they’d benefit from but they haven’t reached this stage yet

Therefore, the fees you can charge limited companies with turnovers of more than £500,000 are significantly greater than a sole trader turning over £100,000. 

The owners of limited companies turning over £500,000 a year or more will want to do one of two things generally: 

  • keep turnover at its current level and look for ways to maximise profit or 
  • use cash flow (and, in some cases, external finance) to fund a period of growth. 

Why you to help them achieve their goals? As their accountant, no-one outside the company knows the business better on preparing financial forecasts, developing a strategic path ahead, improving profitability, and retaining as much cash as possible during periods of expansion. 

You’re in a better place to see the problems lying beneath the surface within a business and to determine whether the current staff and structure of the company are capable of achieving the goals of the business plan you’ll agree with your client. 

A part-time FD or a NED would, of course, have access to your client’s financial records but on a much more intermittent basis that you as an advisory accountant. 

Your accounting practice and your personal business acumen are much better positioned to meld into the corporate structure of your client. 

In addition to advising your clients on how to achieve the goals they had set out, you’ll also have an opportunity to earn significant fee income if you are advising your client on: 

  • readying their business for investment or 
  • their exit strategy 

Readying for investment 

A proactive advisory accountant is particularly important for companies wanting to source external finance or investment for the purchase of new equipment or for a speculative period of expansion. 

The larger the sum of money required to fund a client’s plans, the more scrutiny it will undergo by either funders or investors.  

They will want to see predictable revenue streams, a healthy profit margin, evidence of market demand, a stable and nimble management team with a track record of success, the right staff at key pinch points within the company, and a strong business plan. 

The presence of an advisory accountant throughout the process with the promise that you will be there to motivate, guide, and instruct the management team to hit the targets set out in the business plan will be one of the most attractive features of any potential investment. 

Exit strategies 

Taking a company to market should be planned for up to 18 months before it’s finally offered to sale to investors and other parties. 

While the purchasers of businesses buy companies for the value they can add to them over three years, the best way to secure the most advantageous price for your client is to make sure that, during the due diligence process, there are fewer reasons for the buyer to try to haggle the price down from the originally agreed amount. 

In your role as advisory accountant, you’ll need to make sure that: 

  • the management team post-handover is capable of running the business without its current owner-directors and be able to prove that and 
  • the current structure and staff of the business can be built upon rather than need replacing. 

An 18-month lead-in time also gives you the opportunity to build a library of documents for the due diligence process and keep it up to date on a month-by-month basis. 

In those cases where the exit is the transfer of the business to family members, your role in readying the business for handover will be particularly crucial if the owner-directors stepping down will rely on the company as a source of income in retirement. 

What do you need to change to offer the best service? 

To offer the best advisory accounting services to your clients, you need to ensure that you have a deep and historical understanding of how your client’s businesses have got to the point that they have. 

What has aided a company to get to its current position and what has the potential to prevent them from getting them to where they want to be? 

You’ll need access to constantly updated financial records so that you can check on your clients’ progress regularly, report back to them, and advice on whatever course of action they need to take if things aren’t going to plan. 

We understand that, if you and your team are already dealing with hundreds of client accounts at the same time as offering advisory services, there is a risk of periods of very high demand on you and your staff at certain points of the year. 

To assist small accounting firm owners to overcome this situation, we developed Hindsight, a specialist plug-in app for Xero, over the period of 18 months. 

Hindsight automatically logs in to each of your client’s Xero accounts once a day. It downloads all of the new information it finds for each client and then analyses it with a view to alerting you to certain events – amount in a client’s bank account, level of indebtedness, last bank reconciliation, debtors days, last invoice issued, and so on. 

If a flag is triggered, it notifies you or the team member to whom you have passed the responsibility that action is needed. At the same time as flagging the event, Hindsight also contains information and tips on how to present the issue to the client with the goal of resolving it as quickly as possible. 

Hindsight is designed to keep you and your team constantly up to date with the state of each client’s businesses thereby greatly reducing the often very large amount of retrospective work which needs to be done at year end or period end to submit Self Assessment, CT600 forms, or accounts to Companies House. 

Hindsight saves time, improves the level of service you often to standard and advisory clients, and divides the workload better and more evenly between you and your staff over the course of the year. 

To find out more about Hindsight, please click here to arrange a phone call with our team. Alternatively, please click here to email us. 

The top 10 challenges and opportunities for small accounting firms in 2021

We move from 2020 to 2021 with hope that 2021 will be nothing like the year before.  


In this article, we examine what we believe will be the top 10 challenges and opportunities for small accounting firms in 2021. 


1. The extension of Making Tax Digital 


Making Tax Digital has regenerated more times than Doctor Who over the last 10 years but it finally went live in a much diminished form on 1st April 2019. 


The eventual aim is to move nearly all personal and corporate taxation to the platform but, at time of writing, it’s now the way for companies, sole traders, and partnerships to report and pay VAT to HMRC if their turnover is greater than £85,000. 


From 1st April 2021 (postponed one year because of the COVID-19 pandemic), VAT-registered businesses under the £85,000 threshold will have to use the Making Tax Digital system. 


Income tax is expected to move to Making Tax Digital from April 2023 with Corporation Tax likely at the same time according to HMRC sources. 


2. The extension of IR35 rules 


Originally due for April 2020 but postponed to April 2021 because of the pandemic, HMRC’s mission to destroy as many of the financial benefits of contracting as possible steps up another gear. 


In April 2018, HMRC changed the rules for contractors working for public sector organisations by decreeing that it was now up to the client to declare a contractor’s employment status and not the contractor themselves. 


Despite genuine worries among contractors that clients would err on the side of caution and declare their working arrangements as within the scope of IR35, it turned out, 18 months after the rule change, 89% of public sector contracts were still outside IR35. 


The evidence is that the rule change did not have the desired effect wanted by HMRC. The rules for contracting for medium- and large-sized businesses will mirror those for the public sector from April this year. 


Accountants (and any friendly solicitors you work with) should prepare for the questions and concerns of any contractors on their books with a view to helping them stay IR35-compliant to keep as much of their money as possible. 


3. Post-COVID economy working practices 


Ever since the UK-wide lockdown was announced on 23rd March 2020, many businesses including accountants started to operate remote working. 


The recently-deployed vaccine should herald a return to work, according to Bloomberg, but employees don’t want to go. Many accountants we speak to are having exactly the same issue. 


If your team has managed well during these unwelcome times, well done to them and well done to you for quickly creating the infrastructure required for your accountancy practice to function properly. 


However, we are worried, not just for accountants but for all other office-based businesses, that remote working will deprive companies of their team atmosphere and leave junior and trainee members of staff exposed and alone. 


It’s fine doing a job from home if you know what your job entails and how to overcome the challenges presented by the work you do. But if you’re a newbie, it’s not so simple. 


4. HMRC post-COVID 


The tax gap is the difference between what HMRC believes it will collect during the course of a year and what it actually collects. Historically, the gap has been falling in recent years partly because of HMRC’s very proactive approach in launching investigations into taxpayers’ activities particularly in the area of IHT. 


While we believe that they will continue this campaign, the number of investigators assigned to closing the tax gap may diminish for two to three years as HMRC investigates potential fraud in relation to the furlough scheme, the COVID loans schemes, and other supportive measures. 


They’ve already begun. One lady was in court in November after making eight separate claims for £30,000 bank loans on behalf of her employer totalling £240,000. 


We don’t expect that this case will be the last. 


5. Function outsourcing 


Standalone payroll firms have been around for decades although very few accounting practices actually outsource any work to them. 


We expect in 2021 and over the coming years more and more functions to be outsourced by accounting firms especially R&D tax credits, IHT planning, due diligence teams, and so on. 


The types of services accountants offer which are not covered by the monthly direct debit are often sold adhoc and, unless a specialist within a firm is kept constantly busy, their employment may act as a drag on a practice’s profitability over the year. 


A better solution for many practices may be to engage adhoc with third party service providers with particular experience in a given field with a revenue split between your firm and that specialist. 


6. Mastering social media 


For many accountants, spending time building a social media presence is difficult to justify. It’s much harder to measure results from social media marketing and it requires you to create brand new content every day (including downloadable material) to build up your base of followers. 


Given the workload of the average practice, it’s hard to imagine many accountants having the time, energy, or creativity to create pithy and actionable copy accompanied by an infographic at the end of a long day. 


However, as the number of accounting firms grow, so does the competition and you need to make sure that your practice name is as prominent as possible to potential future clients. This is especially so as it can now take up to 13 exposures (or “marketing touches”) to your company name before a potential client makes an enquiry. 


You don’t have to do it yourself – there are specialist social media marketers for accounting firms. If you do outsource the work, expect it to cost in the region of £250 to £500 a month. 


7. Getting onto Google’s first search engine results page 


“The best place to hide a dead body is on page 2 of Google’s search results” is a common expression heard among search engine optimisation experts. 


They’re right. Most people don’t scroll past the first five organic (in other words not-paid-for) search results so, if your practice isn’t in those first five search results, finding new clients is going to be difficult. 


This is further complicated by a recent trend among consumers and business decision makers to ask Google a question before they ask a professional. This trend not only affects accountants – it affects double glazing installers, dentals, car repair garages, and solicitors. 


In addition to making sure that you’re seen on page one when someone is searching for “accountant”, you also need to create a library of very high-ranking content specifically asking clients’ questions like “salary dividend split”, “sa301”, and “IR35 tax calculator”. 


Spending money on search engine optimisation does not bring immediate results – you may have to wait up to 3 to 6 months before you see a return on your investment. 


However the investment is worth it because, unlike other forms of marketing, a library of online content continues to deliver new enquiries months and years even if you stop spending money on it. 


8. More accountancy practices offer advisory services 


As more and more clients migrate to online bookkeeping platforms and their accountants encourage them and train them to keep their financial records up-to-date, there’ll be more data available to accountancy practices than ever before. 


More data presents more opportunities to analyse financial and performance data and for accountants to benchmark their clients’ performance against competitors in the same sector. 


The introduction and widespread adoption of online accounting and bookkeeping platforms has been a mixed blessing – as we cover in point 10 during this article. 


We expect that, during 2021, more small accounting practices will widen their range of services (and their fee base) to include advisory services as they seek to find more income in a market beset by downward price pressure in the last five to ten years. 


9. Being cybersecure 


Accountants hold sensitive financial information on their clients and their businesses. The main targets for cybercriminals targeting accountants are clients’ personal details (for creating new and hijacking current credit accounts) and company payrolls (for the same reason but to make multiple fraudulent applications). 


Cybercriminals may also spoof emails making them look like they come from your company. In these emails, they’ll ask your clients to make a transfer to a supplier or to HMRC but with bogus bank details. It may be weeks before the client realises that no-one from your firm actually made that request. 


Accounting Today’s article on the 10 cybersecurity practices which accounting firms need to implement now is particularly helpful. 


10. Increasing automation for better productivity 


Two-thirds of accountants believe that cloud-based accounting technologies like online bookkeeping platforms will help them do a better job in the future. 


Most interesting in that survey was the caveat “in the future”. 


Many in the industry currently believe that lack of accountant-specific functionality on online bookkeeping platforms makes their job more difficult. 


Added to that, we’ve essentially transferred the responsibility for accurate bookkeeping to our clients – very few clients now hire a bookkeeper to visit their premises. 


Bank reconciliation is complicated and many clients make mistakes with it. In addition, clients don’t often classify items of expenditure in a way which allows us to save them money if, indeed, they classify items of expenditure at all. 


It’s a bit of a mess. 


And it’s made all the more complicated by the fact that many of the online bookkeeping platforms promised us time savings (which really didn’t occur) and incentivised us for signing up lots more clients (creating significant backlogs of work as we attempted to correct up to 12 months’ worth of financial recordkeeping per client). 


In order to alleviate these backlogs of work by spreading it out over a 12 month period, we spent 18 months developing Hindsight, a plug in for Xero. 


Hindsight logs into each of your client’s Xero accounts every morning and it automatically analyses the state of each client’s business and the quality of their bookkeeping. 


If your client’s bank balance is too low, too many invoices are unpaid (and those invoices which are paid are taking too long), or there are unreconciled transactions, it warns you or the colleague you assign a client’s account to. 


There are currently 12 different alerts but we expect that to grow to 50 very quickly. 


Not only does it create alerts but Hindsight also informs you or your colleague about the best way to approach the client to describe the problem and help them overcome it. 


Throughout the course of the year, you better manage your clients’ ability to update their online bookkeeping platform and you have a much clearer vision on how each clients’ business is performing. 


This means that you need much less retrospective work on a client’s books to complete their year end, period end, or Self Assessment and that you have much more time for you and your colleagues to maintain and build on your relationship with each client. 


To find out more about Hindsight and how it frees up your and your colleagues’ time and delivers a better service to clients, please click here to arrange a phone call with our team. Alternatively, please click here to email us.