Credit Crunch Advice for Members in Practice.
Chartered Accountants Ireland Practice Consulting team is working with members on all aspects of how to manage their practice in these challenging economic times.
Contact details:
Conal Kennedy Tel: +353-1-637-7396
Níall Fitzgerald Tel: +353-1-637-7382
Running your practice in 2009
Conal Kennedy writes:
There is little doubt that 2009 will be more difficult than 2008 for many firms. Some firms are expecting significant difficulties and those with exposure to sensitive industries may see reductions in fees if clients become unable to continue trading. On the other hand, firms with a broader client base have reported some growth in 2008, but are expressing caution about the prospects for the New Year. Here are some points to consider.
Yes, cash is king, now more than ever. Overwhelmingly, practitioners are reporting challenges with collection of cash. In order to counter this you should ensure that your invoicing and cash collection are as efficient as possible. Overall office efficiency is the key driver. Make sure that you are using your time and billing system as effectively as possible. Keep work in progress low by continuously monitoring workflow. Timesheets should be entered on a daily basis by all staff, so that invoices can be raised immediately when a job is finished. Bill early and often. Raise invoices on account. Do not wait to the end of the month to invoice. Use fee financing if you can obtain it. Ensure that audits and accounts preparation work is done in an efficient manner, using risk as the main driver for assignment work. If you can reduce the costs on these assignments, then you can pass a price freeze or reduction on to clients.
Concentrate on your relationships with your clients. Your clients need you now more than before. Many clients will need additional management accounting services as the profitability of their businesses becomes more marginal. They may also need assistance with compliance with the terms of loan agreements. If your services are indispensable, it may be easier to get paid. Be careful that you do not involve yourself in the management of audit and assurance clients. Monitor your involvement in other clients to ensure that you do not take on unintended risks.
It is more important than ever to stratify your clients into As, Bs, Cs and Ds, and to work out different strategies for each category. It may seem like a strange time to shed clients, but D clients place an even greater drag on your practice in difficult economic times. They may demand more of your time and be even less willing to pay you. They may regard non-compliance with taxation law or companies legislation as valid strategies for dealing with their own difficulties, and so put your reputation and practice at risk. It is even more urgent now to nurture your better clients.
Review the risks that face your practice. The risk profile of your client base has probably changed in the past year and will face further changes in the next twelve months. Discuss risk with your partners and colleagues. Are you satisfied that you are not taking on unacceptable risks? Are you adequately rewarded for the higher risk assignments that are in your portfolio?
Do the difficult times present your practice with opportunities? Many practices who were last involved in insolvency in the eighties and nineties are looking at it again. Corporate recovery and forensic work may also be fruitful. Ensure that you have the necessary competence to carry on any of this work. Develop a coherent strategy and seek out a strategic partner if necessary.
Going concern is likely to become a key issue on audits. Familiarise yourself with ISA 570 and the contents of the disclosure notes set out in paragraph 33-2 of the standard, which are quite detailed. Speak to the directors of client companies now to ensure that they will treat the matter with sufficient gravity and in a timely manner. It is their responsibility in the first instance that the work is done to support the going concern assertion in the accounts. Familiarise yourself also with the emphasis of matter format of the audit report. Don't forget that the same financial statements note disclosures are needed in audit exempt clients who have going concern issues. Exercise a heightened level of scepticism over the carrying values of assets and liabilities, even where going concern is not an immediate issue.
Accept that credit is going to be much more difficult to obtain over the next year for many of your clients. Manage clients' expectations of the extent to which you can or cannot assist them to raise finance. Watch out for third party confirmations that ask you to certify balances, accounts or the ability of clients to repay loans. Draft a letter yourself as a preference. Do not use terms such as "we certify".
Review your staffing over the next year. Be prudent, but remember that the best staff are always difficult to attract and retain. Plan for the longer term. Don't neglect training. The competence of your staff is critical at this time. Position your practice to come out of the difficult times as a stronger entity, ready to take advantage of the upturn when it comes.
In Practice Consulting, we assist practices with all of the above issues. If you would like to speak to us in confidence please call us or email us.
This article appeared in Practice Matters January 2009
Help for Practitioners who face a complaint
A practitioner writes:
A letter from CARB is enough to send a chill through the bones of any Chartered Accountant, particularly when the letter is outlining a complaint made by a former client and CARB is looking for information to determine whether the matter is to be followed up or closed off.
This happened to me recently and after I had got over the shock, anger and indignation, the letter had to be dealt with - it would not go away all by itself. So what to do? My first reaction was to deal with every issue in great detail and produce a very long and, to my mind, comprehensive letter covering every possible angle. This I did, but would it deal with the problem? Then I remembered a presentation by Conal Kennedy where he explained that Practice Consulting is there to help members deal with CARB. Following a call to Conal, I sent on the CARB letter and my initial response. He got back to me very quickly with some very useful suggestions to improve (and shorten) my reply. In particular, stick to the facts and steer clear of personalising the matter.
Following a redraft of the letter, Conal reviewed my second attempt and with a few small changes this was sent to CARB. The result? A reply from CARB saying the matter would not be taken further and peace of mind for me.
In times of recession it is well known that complaints to professional bodies and claims on PII insurance increase. We all know our PII is cover is there and it is equally reassuring that Practice Consulting are there to help deal with complaints before they get that far.
See Practice Consulting's new helpsheet on this matter.
This article appeared in Practice Matters January 2009
Other resources available to Members in Practice
For further information on the credit crunch see www.creditcrunch@charteredaccountants.ie