Cormac Lucey explains why, after decades of deflation, we could be on the cusp of a financial regime change.Falling interest rates have been the constant backdrop to my adult financial life. In late 1981, US 10-year government bonds yielded an annual return in excess of 15%. Since March this year, they have been yielding less than 1%. UK and Irish bond yields have followed suit, with gilts now yielding less than a third of 1% and Irish Government bonds offering a negative yield meaning you must pay for the privilege of lending to Micheál Martin, Leo Varadkar, Eamon Ryan et al. This development was not some mere technical development on arid financial markets. They have propelled property prices upwards – as a given rental stream is worth an even-greater capital sum if its cost of capital keeps falling. The same logic has pushed equity values higher and higher. The US stock market’s cyclically adjusted price-earnings ratio now exceeds 30. That level was only previously seen in the years around the tech bubble peak of 2000.I fear that we are now on the cusp of financial regime change. A recent study by Man Group, a London-based investment management firm, contends that prevailing economic regimes “reach their apotheosis, and then change, when the extreme conditions they have created lead to permanent policy change”. It then predicts that current extremes in deflation, inequality, debt levels and globalisation may lead to four major transitions in the next decade.There will be a switch in policy emphasis from monetary to fiscal. With central bank interest rates already at or about zero, there is little scope for further reductions as negative interest rates would only further weaken the commercial banking system without yielding generation of significant economic stimulus.The owners of capital have pocketed huge gains over the last four decades while the share of national income going to labour has steadily decreased. As inequality here in Ireland may have diminished over that time, it has increased in other states, especially in the US. That has helped breed seething political discontent. One way to abate that agitation is for politicians to favour labour over capital, the second big transition that Man Group predicts. The third shift that the report expects is one from globalisation to localisation. It has passed by almost unnoticed, but global trade as a percentage of global output peaked back in 2007/2008. Superimpose that on a trade war between the US and China, trade blocs seeking self-sufficiency in personal protective equipment and a scramble to pre-purchase possible COVID-19 vaccines and you can see why this prediction is already unfolding before us. The final prediction is a consequence of the others: it is a move from deflation (or, strictly speaking, disinflation) to inflation. According to the Institute of International Monetary Research, broad money has grown by 26.7% in the US over the last 12 months, a record in the US’s modern peacetime history. That is an international outlier, but strong money growth has also been evident in India (12.1% growth over the last 12 months), China (11.4%), the UK (11.3%) and the euro area (+8.9%). Nominal national output closely tracks broad money. Real national output has been hit by the pandemic and the consequent recession. Fast-growing nominal income combined with slow-growing real income suggests a noticeable (above 4%) rebound in inflation in 2021 and 2022.If Man Group’s four predictions come true – and I think that there’s a very good chance that they will – it will represent a complete regime change for financial markets compared to what has prevailed over the last four decades. Get ready. Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

Des Peelo explains the one pertinent question business leaders should ask before making any major decision.Better information means better decisions, which, in turn, means better outcomes. The critical point here is that understanding what the information is, and what it is not, makes for a more informed decision.Concerning major decisions, what is the most dangerous word in the vocabulary of politics, economics, or business? Most people would say ‘risk’, meaning that the result could go wrong, have a poor outcome, and/or have an unexpected adverse effect.Major decisions arise in many circumstances. Directors consider a significant business acquisition or seek to confront a crisis; a politician is pressed on a problematic public issue; an economist is asked to advise on substantial infrastructure spending. All involve risk. The human instinct is to avoid risk or at least minimise it.There is a more dangerous word than ‘risk’, however. That word is ‘assumption’. I have witnessed several difficult circumstances or court hearings where the evidence, written or verbal, involved statements like “I assumed…” or “the assumption was…” In other words, something has gone wrong in using an assumption. As Albert Einstein said: “Assumptions are made, and most assumptions are wrong”.Assumptions are higher up in the decision-making tree than risk. In fact, assumptions create risk. Decisions are made to create an outcome in the future. That purpose, by definition, means making assumptions as to the components necessary to make that decision. An understanding and assessment of risk, therefore, means evaluating the validity of the assumptions.There can be a pyramid of underlying assumptions in a situation. Take, for example, the view that investment in an improved rail network is a ‘given’ good idea (an assumption in itself). Assessing the viability of such an investment necessarily involves assumptions as to passenger volumes, fare prices, capital costs, timescale to completion, availability of finance, and so on. It is instructive to witness the debates about the development of public transport around Dublin, such as an underground rail service and airport link. On differing assumptions, any such capital expenditure can be justified or debunked.Assumptions are not facts, though often presented as such. Indeed, most assumptions are reasonably benign and have a historical comparison or rational basis. But assumptions are made by people and often reflect perceptions, prejudices, and biases. They are seen as valid if they conform to already held views or experiences.Even further back in the assumption analyses are demographics (i.e. the breakdown of the population as to age, location, birth rates, and so on). Almost any significant political or economic decision necessitates knowing and understanding the influence of underlying demographics. The three phases of life – education, work, and retirement – have evolving characteristics and interpretations. Statistics are endless and often challenging to interpret as to trends and reasons why, yet they likely influence significant decisions.Back to the decisions. An insistence on knowing and understanding the key assumptions is the obligation of those tasked with making decisions. For instance, the avoidance of subsequent large cost overruns in capital projects can only be addressed through a prior rigorous assessment of the underlying timescales, cost estimates, comparisons with similar projects and, most critically, a testing of the individuals and/or firms on their capabilities in making the assumptions.The history of major business acquisitions is littered with casualties. The cause is often later identified as being a lack of informed reasoning in making the acquisition in the first place, the underlying assumption being that it must be a good idea because the advisers said so.The pertinent question to ask before a major decision is, therefore: please list in order of importance or risk the top ten specific assumptions in making the project/circumstance work. But remember: vague assumptions (such as a “buoyant economy” or “no change in interest rates”) do not count as specific assumptions.

Annette Hughes discusses the root causes of Ireland’s housing affordability and supply problems, and the possible solutions.Successive governments have had housing and the restoration of a properly functioning housing market as a priority for many years. Despite numerous initiatives, policies, and reports highlighting the persistent problems in the market, EY-DKM’s new report, Putting Affordability at the Heart of the Housing System, has found that the issues are many and complex and there is no single, quick fix.The report, which was prepared for the Irish Home Builders Association (IHBA), highlights the structural defects in the market that have led to rented accommodation costing more per month than a mortgage. Our analysis also shows that there is a significant affordability gap for first-time buyers (FTBs), as their income is insufficient to purchase the median FTB property in 13 mainly urban areas out of 34 areas examined.The report also finds that the deposit required is a significant barrier to homeownership. The average deposit paid by FTBs is 14% of the property price, with many getting support from parents. The cost of the average deposit varied widely, however, as did the time taken for first-time buyers to save it. Saving periods ranged from nearly two years in Kilkenny to more than 15 years in Galway City, Wicklow, Waterford City, Cork City and Dublin City due to differences in income, expenditure, and house prices.36,000 new homes are required each year over the next 21 years to meet housing demand in Ireland but this is unattainable if urgent action is not taken to address affordability issues.A series of measures could reduce the delivery cost of residential development. These include direct financial supports for FTBs, a root and branch reform of the planning system, waiving development levies, accelerating the servicing of zoned lands, actions to address the cost of funding for builders, a full assessment of the impact of new regulations, and the introduction of tax incentives to stimulate development in key locations.The increased tax relief for the ‘Help to Buy’ scheme announced in the July Stimulus should be extended to 2025 and a State-backed shared equity scheme for affordable units on private lands, supported by a Government-funded equity loan of 25-30% of the price, should be introduced.The State takes an estimated 20% of the average delivery cost of a new home. The report, therefore, suggests that consideration should be given to reducing this component for FTBs.A key recommendation is restructuring the planning process to enable, where appropriate, outline planning permission to be obtained early in the process. This would reduce the time frame for delivery, which could, in turn, reduce the cost of financing. The cost and availability of development finance are also covered, with the suggestion that Home Building Finance Ireland (HBFI) should consider accessing EU loans to provide funds at more competitive rates.The quality of new homes in Ireland is much higher than in the past, reflecting new regulations and higher building standards – all of which have a cost. Estimates suggest that these policy-imposed costs account for around 20% of the total delivery cost of a new home. The report recommends that any new regulations under consideration should be carefully evaluated against their impact on the viability of residential construction and subject to a cost-benefit analysis.Under tax considerations, the Government is urged to consider expanding the scope and duration of tax relief available under the Living City Initiative to include newly constructed apartments in designated urban areas to provide a buy-side incentive to encourage their construction.This report is intended to support the Government in achieving the stated objective of putting housing affordability and homeownership at the heart of the housing system. The solutions, while varied, need not be complicated. The early adoption and implementation of even a small number of the recommendations could make an almost immediate difference to many homebuyers and developers, and set Ireland on the road to meeting its housing requirements for the next two decades and beyond.Annette Hughes is Director at EY-DKM Economic Advisory.

Economists may have a plethora of letter-named predictions for the post-pandemic recovery, but Chartered Accountants are depending on a ‘B-shaped’ comeback. Dr Brian Keegan thinks we need to look to Brexit and the US general election for any real answers.Professions are notorious for using jargon, and different professions have preferred styles for their jargon. Doctors tend to abbreviate the ailments they treat, like the “flu”. Accountants tend to prefer acronyms such as IAASA, IFRS and FRC. Economists, on the other hand, use labels, often with reference to the chief protagonist within the economic phenomenon, hence “Laffer curve”, “Keynesianism” and, even at a stretch, “Pope’s children”.Creeping into the commentary at present is an alphabet soup of labels to describe the nature of the post-pandemic recovery. At the outset, we all hoped for a “V-shaped” recovery, denoting a rapid fall-off in activity matched by an equally rapid recovery. Then, more creative economic types, possibly channelling medical concerns over a second surge of the pandemic, started talking about a “W-shaped” recovery. This way, things will start to get better, lapse again and then recover more fully. The latest commentary talks about a “K-shaped” recovery, whereby some sectors of the economy will recover quite quickly, but others will continue to decline. However, judging from our most recent members survey, there is an expectation among Chartered Accountants of what could be termed a “B shaped” recovery, whereby over time most sectors will loop back to their level of activity post-pandemic. Almost all of our respondents thought that business activity would eventually get back to something resembling pre-COVID-19 days. The main area of disagreement was the amount of time this might take, with our members in the Republic of Ireland expecting a quicker recovery than our members in Northern Ireland. The expected difference in recovery time between the north and south of the island is borne out by the ultimate truth serum of economic status, which is the analysis of tax receipts published each month. Counting money will always give a more accurate picture than counting questionnaire responses. Not only that, because of the recurring nature of tax payments, it is possible to trace a coherent and reliable set of comparisons. Tax receipts in Ireland overall have remained remarkably stable, despite the impact of the pandemic. Yet, tax receipts in the UK are showing a serious decline year-on-year. One reason for the difference is down to timing. Ireland counts tax receipts from 1 January; the UK from 6 April by which time, of course, the pandemic was in full surge. However, the differing financial years do not fully explain the disparity. Consumption has fallen in both countries, as evidenced primarily by VAT receipts, but production, as evidenced by income tax and corporation tax receipts, has not shown the same decline in Ireland as in the UK.Resilience in production over consumption could prove to be critical in the coming months since coronavirus is only the first international crisis of 2020. Despite the behaviour of the respective governments, we are all paying too little attention to the impact the end of the UK’s transition period with the EU in December will have on Irish business. There is also insufficient attention being paid to the economic policies of the two main contenders in the US presidential election, nor much being discussed on how the outcome of that election could shape US trade, international corporation tax policy and foreign direct investment because of the focus on the country’s civil discord.The recovery prospects on the island of Ireland will indeed be B-shaped in 2021, but not because of the shape of the economic trajectory. Think instead about the impact of Brexit, and whether or not there is a Biden presidency. Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.

Lucy-Anne O’Sullivan, a trainee Chartered Accountant at KPMG and qualified radiographer, talks about her recent return to the front line at St Vincent’s Hospital, Dublin to help tackle the COVID-19 crisis.How did you arrive at a career in accountancy?It is safe to say that I have taken quite an unconventional route to accountancy. I studied radiography at University College Dublin (UCD) as my undergraduate degree and started working in St Vincent’s University Hospital shortly after. I worked there for two years with a fantastic team and made life-long friends. I was always drawn to the corporate world and wanted to explore this interest further, so I completed a Masters in Management at UCD Michael Smurfit Graduate Business School. It was something totally different and allowed me to explore various aspects of business. This was my steppingstone to KPMG Risk Consulting, where I am currently preparing to sit my CAP 1 exams.You recently returned to the front line. What was that experience like?When the COVID-19 pandemic hit the country earlier this year, I felt compelled to make use of my skills as a radiographer and returned to St Vincent’s. Radiology has had a huge role to play in both the diagnosis and treatment of COVID-19 patients. I am very grateful to have had the opportunity to help out a department that has been under a lot of added pressure.The transition back to the hospital was smooth as I was familiar with St Vincent’s, having worked and trained there before. KPMG was hugely supportive of this move, which I am very thankful for. The first week or two took some getting used to as there were numerous new protocols, but wearing head-to-toe PPE and voluntarily walking into the COVID-19 intensive care unit (ICU) quickly became the new normal. The hospital looked and felt quite different, but I felt quite safe as the protocols in place are very effective. There are enormous backlogs of exams as a result of the lockdown, but it is reassuring to see that these patients are slowly but surely starting to come back to the hospital as it looks a little more normal each day.Describe your typical day at the peak of the COVID-19 crisis.The role of the radiographer is very hands-on and, as a result, there is no scope to shy away from the virus. A standard day involved running to COVID ED (the COVID-19 emergency department) to perform chest X-rays on every query case that arrived into the hospital. Every ICU patient needed a daily chest x-ray to monitor progress and assess new line positioning. Radiographers can be seen running all over the hospital with portable X-ray machines to examine patients on the wards, as well as treating non-COVID-19-related patients in the emergency department. I trained in the Cardiac Catheterisation lab, so I also spent some time there as standard illnesses are still occurring.What lessons will you bring back to your role in Risk Consulting?My lessons are quite simple: people are critical to the success of any team, regardless of the working environment. My time in St Vincent’s was tough at times, but I never had to face it alone and always had the full support of my team. It is incredible to see what you can overcome with the backing of a good team behind you.If you could give the public one piece of advice, what would it be?Don’t get too complacent too quickly, as the virus is still out there. That said, I am as excited as anyone to get back to normal. Also, hand sanitiser is your best friend!

In these challenging times, it is comforting to know that everyone can develop resilience. Dr Eddie Murphy explains how.Nobody can be protected from adversity all their lives. In fact, over-protection can result in poor problem solving and later, poor coping skills in the face of adversity. Recently, I planted a Tree of Hope in the People’s Park in Limerick as a symbol of how hope and brighter days will come after the storms pass. Indeed, some people are like trees in that, having survived the most challenging weather conditions and been tested by adversity, they will grow and endure.In reality, bad things happen. We all have periods of stress, loss, failure or trauma in our lives. But how we respond has a significant impact on our wellbeing. We often cannot choose what happens to us, but in principle, we can choose our attitude to what happens. It isn’t always easy in practice, but one of the most exciting findings from recent research is that resilience, like many other life skills, can be learned.What is resilience?Resilience comes from the Latin word resilio, meaning to jump back. It is increasingly used in everyday language to describe our ability to cope with, and bounce back from, adversity. Some define it as the ability to bend instead of break when under pressure or difficulty, or the ability to persevere and adapt when faced with a challenge. The same skills also make us more open to, and willing to take on, new opportunities. In this way, being resilient is more than just survival; it includes letting go, learning and growing, and finding healthy ways to cope.It’s not rareResearch shows that resilience isn’t a rare quality found in a few extraordinary people. One expert on the subject, Dr Ann Masten, describes it as ‘ordinary magic’, noting that it comes from our everyday capabilities, relationships and resources. She argues that resilience is dynamic and that we can be naturally resilient in some situations, or at some times in our lives, and not others. Each person and each case is different.We can all work on our resilience. We can’t always predict or control what life throws at us, but we can build a range of skills to help us respond flexibly, deal with challenges effectively, recover more quickly, and even learn and grow as a result. It can also lower our risk of depression and anxiety and enable us to age successfully. What’s more, the same skills can help us manage the fear of taking on new opportunities and help us develop in other ways too.Areas of influenceThree areas influence our resilience:our development as a child and  teenager;external factors such as our relationships with others or having a faith; andinternal factors, such as how we choose to interpret events, manage our emotions and regulate our behaviour.Parents and those who work with children can do much to help build the resilience of kids and teenagers. While as adults, we can’t change our childhoods, we can do plenty to develop our resilience within the second and third factors. Indeed, research shows that resilience is developable in adults as well as in children.Building resilience skillsThere is saying, ‘what doesn’t kill us makes us stronger’. Science has shown that it has some truth: experiencing some adversity during our lives does increase our resilience by enabling us to learn ways of coping and identify and engage our support network. It also gives us a sense of mastery over past adversities, which helps us to feel able to cope in the future. We have probably all experienced things as stressful initially, but later find that similar activities no longer phase us. It is important to learn that, through such struggles, our coping skills and resources can be taxed but not overwhelmed.Some psychologists argue that most of us aren’t prepared to face adversity. We, therefore, run the risk of giving up or feeling helpless in the face of difficulty. But by changing the way we think about adversity, we can boost how resilient we are. Based on extensive research, they believe that our capacity for resilience is not fixed or in our genes, nor are there limits to how resilient we can be. I like this, as it allows for hope that we can change.Resilience and relationshipsOne of the critical external sources of resilience is our network, such as family, friends, neighbours, and work colleagues. Taking time to nurture our relationships is a vital part of building resilience. Knowing when we need help and asking for it is an integral part of resilience. In this era of mental health awareness, reaching out and offering support is critical.Members and students can contact CA Support on 01 637 7342 or 086 024 3294, by email at casupport@charteredaccountants.ie or online at www.charteredaccountants.ie/ca-supportDr Eddie Murphy is a clinical psychologist, mental health expert and author. 

Paul McCourt and Fiona Hall consider the possible tax implications of current low asset values and what individuals can do to help protect family finances for the long-term.The COVID-19 outbreak is having a range of effects on families and individuals, with many investors seeing family finances suffer and the value of their assets fall in recent months. An important factor to remember at this point is that when an individual makes a gift, it is the current market value of the asset being gifted that applies for both inheritance tax (IHT) and capital gains tax (CGT) purposes.TrustsThe creation of a trust to hold assets for the benefit of the wider family or dependants has been a long-standing solution for many individuals seeking to pass assets to the next generation. Settling a trust is generally a chargeable IHT event. However, if the settlor’s nil rate band is fully available, individuals can transfer £325,000 of assets into the trust without incurring an IHT liability. This could increase to £650,000 for married couples jointly settling a trust with the availability of two nil rate bands. CGT hold-over relief may also be available so that the gift to trust does not trigger a CGT liability.For those considering using a trust, or who have already established one, now may be the time to gift or sell assets. When assets pass out of the trust to a beneficiary, either by way of an entitlement or an appointment by the trustees, any IHT and CGT liabilities are based on the current market value of the assets passing. Trustees may wish to consider whether the trust continues to meet its objectives and whether it is now appropriate to appoint assets out to trust beneficiaries.Personal giftsGifting an asset to another individual is often a potentially exempt transfer for IHT purposes. As such, if the donor survives for seven years from the date of the gift, it falls out of their IHT estate. However, if the donor does die in this period, the value of the assets gifted at the time the gift was made could become taxable.Where a gift fails the seven-year rule, subject to reliefs and the IHT nil rate band (currently £325,000), IHT could be payable on the gift (by the recipient or the executors) or the value of the estate. Making a gift when asset values are low will mitigate the potential IHT exposure for the individual considering gifting an asset.A gift is treated for CGT as being a disposal of the asset at market value by the donor. This could trigger a capital gain if the value exceeds the allowable cost unless the assets qualify for business assets hold-over relief.When asset values are lower, the likelihood of a gift triggering a gain is reduced, or a gift may give rise to a loss. Care should be taken in generating a loss on gifts, as any losses arising from the disposal of an asset to a connected person can only be set against gains that arise from other disposals to that same person. Capital losses generally carry forward to future years, but not back so timing is vital.Crystallising ‘paper’ lossesIndividuals may consider crystallising a current ‘paper’ or book loss on an investment and repurchasing a similar asset. Any such loss can then be offset against capital gains arising on asset disposals made in the same, or later, tax years. It is important to note, however, that ‘bed and breakfasting’ of shares is often ineffective for tax purposes and particular care is required with transactions conducted personally, via an individual savings account or between spouses.As with any investment decisions, independent investment advice should be sought before proceeding.Exercising share optionsWhere an individual exercises an option to acquire shares in an employer through a non-tax-advantaged share plan, income tax is charged on that exercise on the difference between the market value of the shares at the date of exercise and the amount paid for the shares under the option. If the shares acquired are ‘readily convertible’ (i.e. easy to sell for cash or shares in a subsidiary company) National Insurance contributions will also be due on the exercise of the option.Exercising such options while the value of a company is temporarily reduced could reduce tax liabilities in the longer-term. However, this is clearly a risk-driven investment decision on which independent investment advice should be sought before proceeding. One of the key benefits of holding an option is that it would often be exercised before an exit event (e.g. the sale of the company) so that there is an immediate return of value. In the absence of such an event, the implications of becoming a shareholder in the company, and the risk to the value thereby invested, should be considered carefully.Pensions – lifetime allowanceAn individual whose pension pot was previously above the lifetime allowance of £1,073,100 (and with no protection/enhanced protection) might choose to crystallise pension benefits now while the fund value is reduced to reduce/eliminate the lifetime allowance tax charge.There are many financial, investment and IHT issues to consider carefully before proceeding, but acting now may save tax in the long-term. Action should only be considered as part of overall wealth planning, including advice from an independent financial adviser.Short-term opportunity to achieve long-term goalsThis is a difficult time, but any temporary reduction in asset values may allow clients to pass assets into trust or to the next generation at a lower tax cost than both a year ago and a year from now.Fiona Hall is Principal, Personal Tax, at BDO Northern Ireland.Paul McCourt is Tax Principal at BDO Northern Ireland.

The Temporary Wage Subsidy Scheme is ever evolving in the face of uncertainty, writes Maud Clear.The Temporary Wage Subsidy Scheme (TWSS) was introduced on 26 March 2020. Looking back 20 weeks on, in a world turned upside down by COVID-19, it is fair to say that the Scheme has evolved since its inception. With many businesses facing an uncertain road to recovery, the July Jobs Stimulus package was the next eagerly awaited phase in this evolutionary process.Revenue offered its services to the Department of Finance to pay out the subsidy through real-time reporting tools – an extraordinary move from an institution whose function is to collect tax.While the initial assessment in establishing eligibility was a significant exercise for many employers, Revenue provided consistency and support in their operation of the Scheme.That is until a programme of compliance checks was announced on 23 June for all employers availing of the Scheme. This was an unforeseen turn in the Scheme’s evolution, particularly when Revenue issued guidance on 20 April indicating: “We may in the future, based on risk criteria, review eligibility”.Such a broad stroke approach and the requirement for a response within five days have many employers questioning what is yet to come in the operation of the Scheme.Chartered Accountants Ireland, under the auspices of the CCAB-I, sought an extension to this response time. In response, Revenue may now allow for an extension of the five days where an employer contacts them to explain their difficulty in returning a response within the required timeframe.The announcement of an extension to the TWSS until the end of August came with a warning from the Minister for Finance that “this support cannot last forever”. As the challenges facing employers in re-opening continue to mount, assurance has since been provided by the Minister that the Scheme will not come to “an abrupt end”.  Most employers need the support of the TWSS to get back on their feet. Clarity on how they will get it, and for how long, will be a determining factor in their recovery. It is hoped that the ‘July Jobs’ stimulus package will provide that certainty.Maud Clear is Tax Manager at Chartered Accountants Ireland.

The prospect of an EU-wide digital tax raised its head again in June following developments at the OECD. Peter Vale and Kim Doyle consider if we are now closer to implementation of an EU digital tax across all member states, and the impact on Ireland’s offering.The EU agreed last year to park its digital tax proposals to allow global consensus to be reached through the OECD digital tax discussions.Both the EU and OECD proposals aim to allocate a portion of profits based on the location of consumers, reflecting the increasing value that businesses place on consumer data.In June, the US withdrew from the OECD’s digital tax discussions. This has increased the likelihood that the EU will push ahead with its own proposals.In the short-term, the impasse at OECD level is also likely to see other countries push ahead with unilateral digital tax proposals. Indeed, many EU countries have either implemented or proposed their own digital tax proposals.An EU digital taxThe EU’s original digital tax proposals envisaged a simple 3% turnover-based tax as an interim measure, subject to reaching agreement on a means of allocating profits based on digital activity. Given the complexities involved in arriving at such a means, the risk is that any interim ‘quick fix’, such as a flat turnover-based tax, could potentially become permanent.While countries are free to introduce their own digital tax measures, as several have done, implementation of an EU-wide digital tax regime would require unanimity across all EU member states. The need for unanimity could make it challenging to implement as certain countries, including Ireland, are not in favour of the existing EU digital tax proposals.However, the EU is looking to replace unanimity over tax decisions with a form of “qualified majority voting”. While such a change will itself require unanimity, political factors may lead to the removal of the requirement for unanimity in the future. This could potentially pave the way for easier implementation of EU-wide tax changes.Although the removal of the requirement for unanimity on significant EU tax decisions is some years away, countries are often reluctant to use a veto to block EU tax proposals. Hence the real possibility of an EU-wide digital tax in the short- to medium-term.COVID-19 will also drive countries to seek out additional tax revenues to fund spending, with digital tax from large multinationals likely seen as an easy target.What does it mean for Ireland?In recent years, many multinational companies (MNCs) with substantial operations in Ireland have moved their valuable intellectual property (IP) here. Over time, this would be expected to increase corporation tax revenues in Ireland.A simple 3% tax on the ‘digital’ revenues of large MNCs would increase the effective tax rate of these companies and thus dilute the benefit of our 12.5% corporate tax rate. This would impact low-margin businesses most and from a tax perspective, would make it less attractive to operate from Ireland.While the movement of IP to Ireland should see an increase in our corporate tax revenues, an EU-wide digital tax could see a pull the other way; it may cause some groups to reconsider their Irish presence.However, even if our tax regime becomes relatively less attractive, our 12.5% corporate tax rate may still make Ireland the most compelling location in Europe in which to do business and help us retain key employers.Digital tax optionsThe EU acknowledges that a 3% turnover-based tax is a blunt instrument and that more refined taxation of digital activity is the end goal. The OECD considered other options, which would involve looking at the level of activity in the selling country in determining an appropriate allocation between the selling country and the market jurisdiction. However, it is acknowledged that this is a difficult exercise – one that potentially involves a rewriting of transfer pricing principles – hence the EU proposal to start with a straightforward 3% turnover-based tax.Ideally, there would be agreement at EU level on a more sophisticated and accurate means of profit allocation rather than simply jumping into a turnover-based tax regime. While this might take some time to develop, it could be part of negotiations at EU level given that unanimity is required to implement any digital tax proposals (although countries would remain free to continue to develop their own digital tax regimes, which is far from an ideal scenario). A longer-term solution that reflects the value-added activities taking place in the selling jurisdiction, not merely market jurisdiction factors, would be better for Ireland. It would also encourage more knowledge-based businesses to locate here.Wider impactIf the price of any negotiation on digital tax proposals is that unanimity over tax decisions is removed, there is a longer-term vista of other EU proposals being pushed through. This would include the dreaded Common Consolidated Corporate Tax Base (CCCTB), which would again look to rewrite the rules in terms of the allocation of a group’s profits. Such moves would be bad for a small, open economy such as Ireland with significant profits diverted to larger market jurisdictions diluting the benefit of our 12.5% corporate tax rate.Once again, we are at a critical juncture in terms of global tax rule changes. Developments to date have generally been positive for Ireland. However, it would be dangerous to think that this will continue to be the case. In practice, our options are limited in terms of influencing the direction of changes to the tax landscape. In any future scenario, however, the location of high value-add activities should continue to play a key role in the allocation of a group’s profits. One thing that is not good for Ireland is uncertainty. Groups cannot make robust plans in an uncertain environment. The sooner there is clarity on digital tax changes, the better for Ireland.Ongoing robust corporate tax receipts evidence the generally positive impact that global tax changes have had in Ireland to date, with a movement away from tax havens to jurisdictions with substance. If Ireland can maintain a regime that both encourages and rewards innovation, we will be in the best possible place to emerge relatively unscathed from the latest round of changes.Kim Doyle FCA is Tax Director, Head of Knowledge Centre at Grant Thornton.Peter Vale FCA is Tax Partner, Head of International Tax at Grant Thornton.

The General Court of the European Union’s ruling in the Apple tax case affirms Ireland’s reputation as a suitable location for global establishment, argues Claire Lord.In 2016, the EU Commission decided that two tax rulings issued by the Revenue Commissioners in 1991 and 2007 in favour of Apple Sales International (ASI) and Apple Operations Europe (AOE) constituted unlawful state aid under EU law.ASI and AOE were companies incorporated in Ireland, but not tax-resident in Ireland. The contested tax rulings endorsed the methods used by ASI and AOE to determine the taxable profits in Ireland attributable to the trading activity of their respective Irish branches. The Commission calculated that, through these tax rulings, Ireland had granted Apple €13 billion in unlawful tax benefits, which therefore constituted unlawful state aid.The decision of the Commission was appealed to the General Court of the European Union by both Apple and Ireland.General Court’s decisionThe General Court annulled the Commission’s decision on the basis that the Commission did not succeed in proving that ASI and AOE had been granted a selective economic advantage and, by extension, unlawful state aid.The General Court agreed with the Commission’s approach on some fundamental legal issues such as how the principles of advantage and selectivity are to be assessed, the reference framework of Irish tax law and, in broad terms, the application of the ‘arm’s length’ principle. However, it also held against the Commission on several points of law and fact. In particular, it rejected the Commission’s primary argument that the Revenue Commissioners had granted ASI and AOE an advantage by not allocating the Apple group’s intellectual property licences held by ASI and AOE, and the associated sales income, to the Irish branches of ASI and AOE.The Commission had made this argument by effectively contending that such an allocation must be the case because ASI and AOE had no employees anywhere else, despite their boards conducting business outside of Ireland. The General Court found that approach to be wrong in law and fact. It held that as a matter of law, the Commission had to show that, in fact, the Irish branches of AOE and ASI carried out the taxable activity; it was not enough to contend that the Commission had not found such activity elsewhere.In addition, the General Court held that the evidence given by ASI and AOE demonstrated that the relevant taxable activities were not in fact carried out by the Irish branches.The General Court also held that the Commission did not demonstrate that methodological errors (which the Court accepted had occurred in the contested tax rulings) resulted in an advantage for AOE and ASI. While the General Court regretted the incomplete and sometimes inconsistent nature of the contested Irish tax rulings, those infirmities did not, in themselves, prove the existence of a selective advantage. Therefore, such errors did not constitute unlawful state aid.Lastly, the Court also found that the Commission did not prove that the contested tax rulings were the result of discretion exercised by the Revenue Commissioners, which had granted a selective advantage to ASI and AOE. Instead, it found that the correct analysis of 11 other rulings by the Revenue Commissioners was that the approach depended on the facts and this was not objectionable.The Commission may appeal the decision to the EU’s Court of Justice before 26 September. However, an appeal is only on points of law and not on findings of fact.The impact of the decisionThe General Court’s decision is a victory for the position argued by Apple and Ireland. Because it holds against the Commission on several points of law and fact, it will be a difficult decision to appeal successfully should the Commission decide to do so. Also, the points won by the Commission are points of law. They, therefore, may themselves be challenged in any cross-appeal and an adverse decision on any of those points could have systemic effects, which the Commission would not welcome.The decision is obviously newsworthy because of the parties involved, the value at stake and the current global focus on international tax, particularly in relation to multinationals and the digital economy. However, it is noteworthy that many of the points at issue are no longer of relevance for companies doing business in Ireland as the structures and approaches at the heart of the case have not been widely used here in recent years.It does, however, clarify that Ireland did not apply any selective treatment to Apple. It underscores Ireland’s reputation as a straightforward and rules-based jurisdiction which remains an eminently suitable location for global companies to establish significant operations.Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Michael Cawley has enjoyed a stellar career. In this article, he shares his five favourite lessons in leadership.Over the past four decades, I have encountered some very impressive leaders in my professional life. From Coopers & Lybrand, where I trained to qualify as a Chartered Accountant, to Ryanair, where I worked as Deputy Chief Executive, I have seen many different types of successful leadership.However, the best leaders have all had several traits and characteristics in common. In this article, I discuss the five things great leaders do consistently. The best part about these five tips is that they are all doable with some thought and a little effort. There’s no magic and no secret sauce, but great leadership does require purposeful application.Present a clear missionBusiness isn’t rocket science but all too often, simple things become unnecessarily complicated. It is the job of the leader to simplify wherever possible, by establishing straightforward reporting lines and setting clear objectives. In doing so, your team will be better able to see their impact on the overall mission of the business. This is important as colleagues who can directly relate their efforts to business outcomes will ultimately raise their game to go above and beyond what is required of them. If you have a team of people working on this basis, the sky is the limit.It all begins with clarity, however, and that begins at the top of the organisation. An organisation’s leaders must understand the mission and communicate unambiguously to everyone – no fudge, equivocation or misunderstanding. Joe Schmidt often speaks about how great teams exceed the potential of their constituent parts, and the same applies in business. Be clear about what is required, get everyone pulling in the same direction, and your business’s performance will dramatically improve.Think beyond the possibleIn my view, we all achieve a small percentage of our potential, but good leaders help people see beyond the constraints and what they define as ‘possible’. As an example, in Ryanair we faced a seemingly insoluble issue in Italy some years ago. The airline’s schedule requires that the turnaround time at each airport for each aircraft is 25 minutes. To achieve this, Ryanair needs to refuel the aircraft while passengers disembark and baggage is removed. However, in Italy, uniquely in Europe, the law prevented airlines from fuelling the aircraft as passengers disembarked. Our punctuality in Italy was badly affected by this restriction and when every other option was exhausted, my colleague, the Director of Operations, was charged with the seemingly impossible task of getting the legislation changed.Initially, we all thought this was impossible but faced with no alternative, we developed an innovative strategy which convinced the Italian government of the merits of our case. This involved working at both local and national level at speed throughout Italy.This ability to challenge people so that they tackle issues that appear to be beyond them, but not so far beyond them to put them into a state of despair, is a delicate act – but if done right, can make the seemingly impossible, achievable.Develop self-confidenceLeadership can be a lonely place, particularly when you are the CEO. All leaders therefore need the self-confidence to see them through – not only during the tough times, but also day-to-day. Unfortunately, Irish people tend to harbour a high degree of self-doubt and this can lead to paralysis at the very moment decisiveness and action is required. But how can you build self-confidence as a seasoned professional? Success breeds confidence, and I am a big believer in excellence in basic execution. Too many people give up early – they hit a bump in the road and the journey ends there and then. Some people are also just waiting for you to fail. But if you obsess over the basics and execute brilliantly every single time, your chance of success will increase exponentially – and every little win will add to your confidence and self-belief.You also need to develop a relentless streak, because sometimes even excellent execution will not cut it the first or second time around. Michael O’Leary is a good example of this approach with his unwavering persistence and focus on the end goal. So, begin with the basics, execute brilliantly, and do not give up.Be paranoidTo become, and remain, successful in business, you cannot rest on your laurels. Andrew Grove, the founder of Intel who is famously quoted as saying “only the paranoid survive”, insisted that Intel double the capacity of their microchip every two years in order to stay ahead of the competition. He saw this as key to remaining number one in their sector.The truth is, once you or your business become a success, people are out to get you. Your competitors work night and day to catch up with you, so you need to work even harder to stay ahead. This paranoia isn’t the debilitating kind, however. It drives you to become better and see evolution and change as standard practice.Ryanair floated in 1997, and our grand finale on the investor roadshow was in New York. At the time, we could produce a seat for a fraction of the cost of our nearest competitor and investors jumped on the opportunity. The offering was 19 times oversubscribed but instead of thinking we’d made it, we knew that we had to continue to work hard to keep driving our costs down. Today, a number of airlines have a similar cost base to what Ryanair had in 1997, but we have moved on because we knew we had to. We still have the lowest cost base in Europe by far, which is the key competitive advantage when you are in the short-haul air travel business. This type of paranoia is driven by the realisation that, because you are a success, you inevitably become a target for your competitors and you must be at least one step ahead at all times.Booking.com is another prime example of this phenomenon. The company is valued at $70 billion and run by a formidable bunch of people. Every year, they make up to 10,000 changes to their website – most of which are so minute as to be virtually undetectable. But they continuously work to test and iterate based on what customers respond to – and in that way stay ahead of the competition.It’s all very well being paranoid, but how do you stay ahead as an individual? You must learn continuously and be acutely aware of the fact that you do not have a monopoly on wisdom. I am 66 years of age and I am still conscious of my shortcomings. To overcome them, I read and research continuously.Energy and enthusiasmAs a leader, you set the tone – and this is most apparent when it comes to your energy and enthusiasm. Your colleagues at all levels of the organisation will pick up on everything from the urgency with which issues are dealt with and the speed of your commitments to your body language and your choices. Energy and enthusiasm flow downhill, as does lethargy and tardiness, so you need to ensure that, as a leader, you are sending the right signals to your people. And although it may be more challenging to do in a remote working environment, it’s still possible if you adapt.The best time to test for energy and enthusiasm is at the hiring stage. Employ people with as much, if not more, enthusiasm than you. Look for people with integrity and honesty, who seek to say and do the right thing even when it isn’t what you want to hear.No amount of talent can make up for a poor attitude, so be careful in your hiring processes and set the bar high in your day-to-day work environment.Michael Cawley FCA is an independent non-executive director and former Deputy Chief Executive Officer at Ryanair.

Sean Quigley explains how team coaching can help companies achieve the ultimate competitive advantage.Research tells us that at best, 20% of leadership teams are high-performing. It also tells us that at least 50% of teams are underperforming. These statistics should be of interest to anyone in a leadership role, as they have huge implications for business performance, the delivery of public services and a wide range of organisations, including not-for-profits.Every organisation is increasingly reliant on greater teamwork to cope with growing challenges, greater complexity, and uncertain environments. The COVID-19 pandemic has just added a new level of challenge. The need for collective leadership and collaborative ways of working across organisational and sectoral boundaries has never been greater. However, teamwork remains the one sustainable advantage that has been largely untapped in most organisations. There is a great need to help teams develop ways of working so that they achieve more than the sum of their parts. The message is clear: senior leaders must get out of their silos and work with each other more. To navigate today’s constantly changing business environment and address cross-disciplinary challenges, top leaders must act as one and be role models for their organisations.In my experience, both as a team coach and a member of senior leadership teams, there are many reasons – some of which are potentially complex – why teams underperform. However, leaders need to recognise the key areas that lead to underperformance.All teams can improve performance. Imagine the impact of a 10% improvement in the performance of your team, and the consequent benefits for customers and all stakeholders? Team leaders need support and guidance to identify areas where their team is underperforming, and to get to the next level of performance. That is where team coaching can have an immediate impact.High-performing teamsA high-performing team achieves outstanding performance by making optimal use of the capabilities of each team member. This highlights the difference between a team and a group. The members of a team are committed, close-knit and share a common objective.Highly effective teams avoid wasting time talking about the wrong issues and revisiting the same topics repeatedly because of a lack of buy-in. Highly effective teams also make higher-quality decisions and accomplish more in less time and with less distraction and frustration. If some of the 80% of teams that are not high-performing did indeed improve their performance, this would represent a huge opportunity to unleash untapped potential and add value.High-performing teams are not only important at the top of the organisation. Today, teams are widely used in the form of project teams and cross-functional teams, for example. There is an inherent flaw in this enthusiastic shift to forming teams, based on the assumption that team members naturally know how to collaborate effectively.To take a sporting analogy, teams know that they must be greater than the sum of their constituent parts. There are some outstanding examples of this. The New Zealand rugby team, the European Ryder Cup teams and the Irish women’s hockey team, which reached the Hockey World Cup final in 2018. As Babe Ruth famously said, “The way a team plays as a whole determines its success. You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime”.This also applies to business teams and it is noteworthy that Peter Hawkins, a leading expert in leadership team coaching, found that in 40 years working with leadership teams, the average intelligence of the individual team members was over 120. However, the collective intelligence of the team as a whole was about 60. This is a significant challenge for many businesses and organisations that recruit or promote the brightest and best, yet struggle to operate effectively as a team. Indeed, many organisations have excellent development programmes for individual managers and leaders. Yet, it is rare to find organisations with programmes focused on integrating those individual programmes with team development programmes. This is a major blind spot.How can team coaching help?Unlike some other team interventions, team coaching is designed to work with teams for lasting change. Team coaching is a true partnership designed to work flexibly with the team for a period of time so that a higher level of team performance and a deeper sense of cohesion can be sustained into the future. Team coaching isn’t just about helping the team optimise the way it communicates and learns together (the work of a group). It also enables the team to define and execute its collective task in a way that creates greater value than is possible from the sum of the individual members. It is a process of empowering your team to find and implement their own solutions. The team coach facilitates this learning journey and supports the team in developing the skills needed to maximise their collective potential. The team coach will bring your team through a tried and tested process to identify where they are and what they need to do to be genuinely high-performing.Teamwork comes down to mastering a set of behaviours that are in theory quite straightforward, but can be challenging to put into practice day after day. However, when all team members know what those behaviours are and commit to putting them into practice, that is a crucial step towards becoming a high-performing team. The team coach can help the team improve performance and add value by ensuring that:the team has a clear, collective and compelling purpose with agreed objectives;these are aligned to the needs of stakeholders; andthey all recognise that this can only be achieved through effective team collaboration.Every team member must take responsibility for their part, as well as for the functioning of the whole team. They must present their collective purpose and objectives to a wide range of external stakeholders. It is also essential that it is a learning team, where members are jointly and individually developing and adapting to the ever-increasing speed of change.The five dysfunctions of a teamIn the book by Patrick Lencioni, The Five Dysfunctions of a Team, he says that “organisations fail to achieve teamwork because they unknowingly fall prey to five natural but dangerous pitfalls”. In his book, he describes the five dysfunctions that are pervasive in all kinds of organisation. By identifying the dysfunctions by name, leaders can watch out for them and learn to address the root causes that prevent teams from reaching their full potential. The five dysfunctions are outlined in Figure 1.Based on the indicators, does your team exhibit any of the characteristics of a dysfunctional team? Would you prefer your team to have the features of a high-performing team? If your team is ready to work hard, take responsibility for results and achieve its potential, now is the time to take action. Working with a qualified team coach can help your teams make the transition quite quickly.Sean Quigley FCA is an executive and team coach, and non-executive director.

Julia Rowan offers practical guidance to help leaders run productive and enjoyable team meetings.Team meetings both reflect and create a team’s culture. In times of uncertainty, they provide an essential lifeline to staff as well as an opportunity for leaders to develop the future team that they need.But before we dive into the detail, bear with me for a short and useful exercise: write down a few words that describe your team. Next, fast-forward 12 months: write down the words you would like to use to describe your team. What did you write? More strategic? More independent? More collegiate? More thorough? More proactive? Now reflect on this: how are you using your team meetings to build that strategic, independent, proactive (insert your own words) team that you want?Leaders rarely view the team meeting as an opportunity to build the team they want. Team meetings are seen as a duty, not an opportunity.Create a strong centre of gravityLeadership is challenging, both in good times and bad, but the challenges are different. Right now, there is significant uncertainty: possible recession, business continuity challenges, staff safety and more. Organisations are trying to recruit, induct, delegate, manage and lead at a distance. Many team members are anxious.All of this, to be slightly controversial, in an environment where commitment to one’s profession can be more important than commitment to one’s employer. And that commitment is neither right nor wrong – it merely reflects the reality that all professionals need to stay accredited. Otherwise, their employment prospects are gone. But it all feeds into the need for the leader to create a strong ‘centre of gravity’ within the team and to make the most of the opportunity (there’s that word again) that team meetings offer.Let’s go back to our opening exercise. Let’s say that you want your team to be more proactive; you have two choices. You either tell them that you want them to be more proactive or, at your next team meeting, you ask each team member to give an example of their proactivity and how it worked out. The first option sits nicely under ‘good advice’, and like all good advice, it may or may not be heeded. The second option sends a powerful message: that members of this team are encouraged to be proactive.The purpose of team meetingsMy take on leadership is that it happens through a series of conversations, most of which are one-to-one – interview, induction, goal-setting, delegation, feedback, performance management, coaching etc. Each of these conversations has a specific purpose and opportunity. Team meetings are different and serve three main purposes:they allow for the exchange of information, ensuring that everyone is on the same page;they facilitate discussion, which leads to better quality decisions; andthey are usually the only time and place where the team is together and can ‘do’ being a team. They are the equivalent of the family dinner – a time to stay connected, support each other and, yes, have the odd spat.The team-building part builds the trust needed to ensure that the discussion and decision-making are high-quality; that all team members can speak up, air opinions and be heard. This, in turn, feeds into that all-important engagement and commitment to the team, which is particularly important when teams work off-site or virtually.Plan and run outstanding meetingsTaking the time to plan and run outstanding meetings is tough on leaders who are already under pressure. They may unwittingly adopt a ‘tick-box’ approach to their meetings: regular meeting? Agenda circulated? All in attendance? All updates covered? Action list distributed?Actually, if you are doing all of that, take a bow because many teams never meet (and hopefully the thoughts below will help you make your meetings even more useful and enjoyable). Or maybe you used to run meetings and then stopped. They took too long, nobody spoke up, or the same few people dominated. Now is a great time to reinvest in your team meetings.The tips that follow may help stimulate some creative thoughts about how you plan and organise your team meetings. Julia Rowan is Founder of PerformanceMatters.ie. Following a career that spanned finance, marketing and public affairs, Julia now works with leaders and teams throughout Europe to build strong teams.

With remote working here to stay, people leaders will need to understand the nuances of managing virtual teams and remote workers. Dr Annette Clancy explains.COVID-19 propelled remote working to the top of the agenda for every business. Overnight, virtual meetings replaced face-to-face interaction and have become the primary way in which work is conducted. This temporary solution to a once-in-a-lifetime pandemic is tolerable because we are in such unusual circumstances.However, some organisations such as Facebook and Twitter are now planning for permanent remote working. We are also likely to see remote working becoming more popular in non-technology businesses. For some people, and some businesses, remote working works. The ability to manage remote teams effectively will therefore be a critical skill in the new working world.What differentiates virtual teams from face-to-face teams? And what skills will managers need to ensure that remote working continues to work into the future?RelationshipsSustaining relationships in virtual teams is always a challenge due to the solitary nature of remote work. Research tells us that members of virtual teams have different ways of engaging with the team; not every member will engage and disengage at the same time. Also, people are coping with different types of emotions. We have seen, during the pandemic, how anxiety has taken hold and people have found it difficult to think. Managers of virtual teams must be attuned to these variances and work hard to help virtual team members generate a sense of belonging, which won’t naturally occur because members cannot meet in person or socially.TrustTrust is a critical issue for remote workers. Can you trust somebody if you have never met them? Recent research (2019) by Breuer, Hüffmeier, Hibben and Hertel tells us that trust is more important for virtual teams than face-to-face teams. The research identifies the factors most relevant for building trust in virtual teams. They are:abilitybenevolencepredictabilityintegritytransparencyThe authors offer some practical solutions to help with trust-building. These include creating a database listing team members’ expertise; providing more information about their ability; online profiles; information in email signatures; and online feedback systems and other processes designed to increase trust and encourage closer cooperation between virtual colleagues.Flexible workingFlexible working arrangements are at the heart of remote working, but this can be challenging for managers who have the job of coordination. In an article published in 2007, researchers Dyne, Kossek and Lobel suggest that collaborative time management processes can be ‘designed in’ from the start. Furthermore, employees can be asked to engage in ‘proactive availability’ where each employee is asked to take responsibility for identifying difficulties and notifying others on the team. For example, if a team member’s existing caring responsibility clashes with a meeting, they tell another team member and send questions/comments in advance to the meeting. In this way, time management and scheduling are organised within the team rather than by the manager.MotivationThe researchers also recommend ways in which managers can bolster motivation. Instead of focusing on how often people are present and available (i.e. virtually present and on camera), they suggest nominating specific events that occur at pre-determined times. Focusing on these events creates more flexibility, particularly for part-time workers, and re-orientates energy on outputs rather than on inputs. This, in turn, is likely to increase motivation and keep people focused on the bigger picture as opposed to who is absent from virtual meetings.Remote working is here to stay, and businesses that offer this flexibility will need to have managers who understand the nuances of managing virtual teams and remote workers. Managing people you have never met is enormously challenging, but there are big rewards for businesses in accommodating how people want to organise their work-life balance.Dr Annette Clancy is Assistant Professor of Management at the School of Art History and Cultural Policy at UCD.

Instead of counting the cost of the current crisis, clients now need their accountants to help them identify and forge a way ahead, writes John Kennedy.Whatever your age or the stage of your career, 2020 is a year like no other. In recent months, your world, your life, and your practice will have changed in a way that no-one thought possible. This has brought great anxiety, stress, and pressure for many. It has disrupted virtually every aspect of life, and it has changed many long-standing priorities and perspectives.At the outset, every conversation was about COVID-19. Then the emphasis began to shift; the focus started to move to how to respond to our unfamiliar new world, to learn how to deal with a dramatic new lifestyle, get better at cooking at home, become more proficient in using technology, and adapt to meeting online.As the days and weeks went on, this shift in emphasis continued. The importance of taking care of our minds as well as our bodies, and supporting each other, came into sharp focus. It is important not to overlook the far-reaching significance of this evolution in thinking. In a world with unforeseen financial pressures, how we connect with others has taken on a revised and revitalised importance and has become established as holding significantly increased value in so many aspects of business life.Reliable, trustworthy customers and clients you can turn to when the pressure is on matter now like never before. The implications will have an impact on your practice, and business in general, for a long time to come.An important lessonOne of the good news stories during the initial stages of the crisis was the way Irish people contributed to fundraising for the Choctaw Nation. As you may know, during the Great Famine in the 1840s, the Choctaw tribe of Native Americans sent much-needed funds to help with famine relief in Ireland.When the coronavirus crisis struck, the Choctaw nation set up a fundraising website. They were at first surprised, and then amazed when donation after donation came in from the Irish community around the world. In an interview about the donations, one of the contributors told this story about an old tribal chief who taught his grandson about the important lessons in life.“There is a fight going on inside me, a far-reaching fight between two wolves. One wolf is evil; he is anger, frustration, sorrow, regret, self-pity, and doubt. The other wolf is good; he is hope, generosity, sensitivity, understanding and confidence. The same fight is going on inside you and every other person too.” The grandson was transfixed. “Which wolf will win?” he asked. The old chief smiled and said: “The wolf you feed.”This is of crucial importance to your work in the months to come. Helping your client feed the good wolf inside themselves should be a central part of your work, as many of your existing clients will feel overwhelmed. They will have come through months of stress and worry, even the optimistic ones who bear it lightly. Many will need to look again at their finances and their financial planning, as many apparent certainties have been overturned. Much has changed, much of it forever.With so much change happening in their lives, it is vital that as their accountant, your relationship with your clients also changes. Clients often have a fixed view of what they should want from their accountant. They believe that they should look to their accountant to prepare accounts, undertake audits, and give tax and compliance advice. In this time of change, your task is to guide them from what they believe they should want to what they genuinely need most.Feed the right wolfMore than ever, clients need you to help them identify what constitutes success in the months and years ahead. Your value will come as much from helping them think clearly as from the technical tasks you carry out.To fully emerge from the coronavirus crisis will take many years. The phrase the ‘new normal’ is much overused, but it holds an important truth. Things may not be normal, but they are certainly going to be new and this is true for every aspect of your clients’ experience – including how they work with their accountant.For almost everyone, the first half of 2020 has been a time of frustration, stress and doubt. If you let your clients see you as the person who will confirm and verify a deeply damaging period for their business, their finances and their lives in a harsh financial record, you are going to be the focus of much of their stress and angst. Left to themselves, it is all too easy for your clients to focus on and feed the bad wolf.For the foreseeable future, every wise accountant will take an active hand in guiding their clients to think about the things they most need. The greatest problem with the COVID-19 crisis, however, has been fear of the unknown. So when it comes to your role, you must replace the fear of the unknown with clarity, understanding, well-thought-out confidence and a path that takes them to a better place. This is the good wolf.Moving from ‘want’ to ‘need’How often have you chatted with your clients about their life, family, hopes and ambitions before ‘getting down to business’? Instead of getting down to the business of counting the cost of the current crisis, however, they now need you to help them see the way ahead. They need you to shape a clear image of a future they can reach. This is not an invitation to become a counsellor or a cheerleader; it is much more important than that.Your role is to help your clients see the commercial realities and show them how to identify each individual stepping stone to get them to the other side of this whole challenging experience. In the short-term, that may well be about survival. You may need to place a sharper focus on identifying new ways to manage cash flow and to help them understand their options in this new reality so they can more effectively chart a course as the emergency financial instruments are removed.While accurate returns and timely compliance will remain part of your role, your real value lies in helping remove your clients’ fear of a future that is worryingly unclear and unfamiliar. Many clients will need to restructure long-standing business practices, to secure new sources of purchase finance, or to change the terms of access to credit.They will need you to help them understand that this will pass, and it will pass most easily and most quickly for those who know how to plan the practical steps to get to that future. The accountants who focus on the need to actively shape the future rather than count the cost of the past or worry about the unknown will stand apart as a source of uncommon, vital value. This will provide a real, tangible return for both you and your clients in the months and years ahead.By helping your clients in this way, you will significantly improve the likelihood of their long-term financial survival. You will open up new dimensions for your relationship with them, binding them to you for years to come. And these new relationships will survive the evolution of traditional accounting as your role as an adviser continues to grow.This is a time to take a firm hand and raise your clients from what they want, to what they need. It is time to help them feed the good wolf.  John Kennedy is a strategic advisor. He has worked with leaders and senior management teams in a range of organisations and sectors.

Dr Michael Hayden provides the accounting practitioner with some food for thought.The COVID-19 pandemic brings a realisation of the importance of certain sectors in our society. While many businesses cease operations, food producers and farm enterprises are acknowledged as essential services.The economic significance of the Irish agricultural industry is well documented. However, in these unprecedented times, the focus has turned to its social importance. This provides an opportunity for the accounting profession to reflect on how it can best assist and support farming businesses, not only in the current circumstances but in the future.A question worth considering is: does the agricultural community reap the full benefit of the extensive knowledge and skills the accountancy profession has to offer? While acknowledging that challenges exist for accountants in delivering their services to farm clients, there are significant opportunities for accountants and farmers to work more effectively together to develop sustainable farm enterprises.Industry contextThe agricultural industry is an integral part of our economy and society. After the economic crisis of 2008, the government primed the agricultural sector to stimulate economic growth and set out ambitious goals for it in the Food Harvest 2020 and subsequent Foodwise 2025 strategy documents. The Department of Agriculture, Food and the Marine’s 2019 Annual Review and Outlook report outlines the importance of the industry. It claims that food produced in Ireland was exported to over 180 markets worldwide and was valued at €13.7 billion in 2018, which represents 10% of merchandise exports. Additionally, the sector contributed 7.5% of gross national income (GNI) and employed 173,000 people (7.7% of total employment) in 2018.Despite the importance of the industry, when average farm size, farm incomes and dependency on farm subsidies are examined, as well as the average age and training levels of Irish farmers, a picture of economic vulnerability emerges. The National Farm Survey (NFS) is published annually by Teagasc and highlights this vulnerability. The 2019 NFS highlights that 34% of Irish farms were deemed viable, 33% sustainable, and 33% vulnerable. It also reports that the average family farm income (FFI) in Ireland was €23,933 in 2019, which varies significantly across farm types (for example, dairy generated €66,570, tillage generated €34,437 and beef generated €9,188). Furthermore, farming in Ireland remains reliant on subsidies which, on average, accounted for 77% of FFI in 2019.Experts warn of another economic crisis post-COVID-19, and there is no doubt that our agricultural industry will attract renewed focus. Furthermore, Brexit represents a significant external risk for Irish agriculture with potentially far-reaching economic, social and cultural consequences. In this context, it is perhaps more important than ever that the accounting profession supports the agricultural community in developing sustainable farm enterprises by assisting farmers in making informed financial decisions based on sound financial management information.Challenges in providing services to farm clientsBefore exploring the opportunities for accountants to provide support to the agricultural community, it is important to acknowledge some challenges that exist in assisting farmers in managing their enterprise.Despite the economic vulnerability of many farms, research shows that most farmers spend little time on financial management. A dislike of conducting financial management activities exists in the farming community. Indeed, they are often viewed as a necessary evil and do not always fit well with the identity of what farmers see as important farm management activities. There are other identity-related issues: many farmers are quite secretive about their financial affairs; some are naturally reluctant to seek farm management advice; many tend to rely on intuition and experience in managing their business as opposed to relying on financial information.As a result of the lack of engagement by farmers with financial management in the day-to-day management of their business, book-keeping systems can be relatively unsophisticated. There is a tendency to monitor bank balances (cash flow), and only a minority maintain management accounting records.The average age of a farmer in Ireland is 59 years. This high age profile is a well-documented concern for the industry. In terms of financial management, older farmers are less likely to invest in their farm and are less likely to strive for innovation and efficiencies.Historically, farmers view accountants as providing a statutory and compliance role, such as filing annual tax returns, with little focus on value-added services. Also, the cost of such value-added services is a barrier as quite often, farmers are unwilling to pay for such services.This profile of the farming community suggests that there are limited opportunities for accountants to provide value-added services to farmers. However, there are ‘green shoots’ that give cause for optimism.Green shoots to exploreIn recent years, there has been a considerable shift in the industry. This shift is transforming the Irish agricultural landscape and providing opportunities for accountants and farmers to work more effectively together to develop sustainable farm enterprises.Policy changes have resulted in some fundamental structural reforms, which have provided opportunities for growth. For example, milk quota abolition under the Common Agricultural Policy (CAP) has resulted in considerable investment and expansion in the dairy sector. While it is acknowledged that farmers tend not to engage extensively and/or dislike financial management, the mindset of many farmers in this respect is changing. In my research, I discovered that where farmers are making strategic farm expansion decisions, there is a considerable degree of engagement with their accountants.Many traditional farm enterprises are diversifying and exploring new markets for their produce. For example, there is an increase in the production of artisan food products directly by farmers, alternative supply chains where farmers sell their produce directly from farm-to-market, and an increased focus on organic food production. These trends and the movement from the traditional farm production system often bring a renewed focus on profit margins, cost management and overall financial management.Farm partnerships and the incorporation of farm enterprises are becoming more widespread in the industry. Such changes in legal structure provide additional opportunities for accountants who have expert knowledge in terms of tax, legal, and succession planning advice.As a result of the above developments, younger farmers are being enticed into the industry. Agricultural courses in colleges and universities have seen strong demand in the past decade, which is very positive. Numerous policy measures have also been enacted to encourage generational renewal, including changes to land leasing arrangements, while tax reliefs/incentives have been developed to facilitate younger farmers entering the industry.These transformations to the Irish agricultural landscape have encouraged farmers to be more open to engaging the value-added services of accountants. This provides opportunities for accountants to develop successful working relationships with farmers, whereby farmers could significantly benefit from the expert knowledge and skills that accountants have to offer.ConclusionThere is vast potential for accountants and farmers to work more effectively together to develop sustainable farm enterprises. Navigating the financial challenges of COVID-19 and Brexit are just two reasons why each farmer should look to his or her trusted accountant for support and expertise as the farming community strives to meet the critical societal demands for a sustainable food supply.Dr Michael Hayden FCA is Assistant Professor of Accounting at Maynooth University.

Sinead Moore and Paul McGarry share insights from a recent study by Deloitte’s Young Audit Professionals Group on how the next generation of audit leaders perceive their role and purpose.The role of auditors will rightly be in the spotlight during this challenging time for our economy. Auditors are expected to challenge directors and management as they assess the impact of COVID-19 on their business and make key judgements on critical areas, such as going concern and viability, to support shareholders and the capital markets.This vital role will be performed against a backdrop of intense focus on the audit profession in several countries, notably the UK, following high-profile corporate failures. While the debate covers lots of ground including competition, conflicts of interest and the growth of non-audit services by audit firms, a critical element of the debate centres on the fundamental question: what is the purpose of an audit?Consistently defining the purpose of the audit has always been difficult. The profession has often been accused of hiding behind the expectation gap (i.e. while legislation and regulation have a narrow definition of what an audit is, the public has a broader expectation). If you ask a practitioner to define an audit, you will typically get the standard definition: ‘to provide an opinion on whether a set of financial statements present a true and fair view’. In embarking on this study, we therefore approached the question from a different perspective – what do young professionals perceive their role to be? What is their purpose, and how do they see themselves?The responses tell us that practitioners have a more nuanced and more in-depth view of their role as an auditor, in contrast to the narrower definition of an audit. The findings indicate that practitioners have a common view that, in addition to providing assurance over the financial statements, it is their role to:understand the business models of the entities they audit;understand the organisation’s internal controls and provide challenge and insight to improve those controls;provide expertise on financial reporting matters;use technology to increase the assurance the auditor is providing; andlook to the future, understand the risks facing the business, and provide relevant insights.Practitioners believe that they are completing the tasks above in their day-to-day activities, though not necessarily in a consistent fashion. There is a clear appetite to fulfil these roles more comprehensively going forward and in doing so, bridge the expectation gap. But much more importantly in the eyes of the young professionals is ensuring that the role of the auditor is meaningful, valued by stakeholders, and attractive as a career.Internal controlsLet’s explore some of the themes that emerged in more detail – first, internal controls. Young auditors firmly believe that understanding the control environment is a key part of their purpose. Furthermore, they view the provision of insight and opinion on those controls as an essential part of their job and believe that they provide this insight to the management of their audited entities in their current role. However, they perceive an inconsistency in how this role is fulfilled across different types of entities given their size, their industry or their ownership structure.The study also pointed to a perception that the more structured framework for internal control reporting for entities subject to the requirements of the US Sarbanes-Oxley Act is effective. This contrasts with the legislative framework in Ireland, where there is no formal reporting on internal controls. Indeed, participants in the study highlighted the following shortcomings:a lack of detail in audit reports on which procedures were performed to obtain an understanding of the control environment; andthe areas where the auditor was unable to obtain assurance over the internal control environment and therefore conducted substantive, detailed testing.A key conclusion, therefore, is that a formal testing and reporting framework, including the specifics of the procedures performed and results obtained, should be reported not just to management and those charged with governance, but also publicly to the users of the financial statements.TechnologyEven before COVID-19, the use of technology in the audit was increasing. Respondents were unanimous in their view that increased use of technology can improve audit quality, improve the efficiency of the audit process, and enhance the insight auditors offer to management and those charged with governance.However, the study highlighted several challenges. First, obtaining data in a usable format to enable technologies is a fundamental issue in facilitating the more widespread use of tools and technology. Privacy and security concerns have made it difficult to get large datasets or continuous access to entities’ systems and have slowed the adoption of many audit tools.Second, the competencies required to use innovative technologies, including enhanced analytics, are different from the current core skills of many practitioners. To reap the full benefit, auditors therefore need to develop new skills and firms must continue to invest in embedding technology into internal training and methodology. Also, third-level institutions and professional bodies have a responsibility to integrate technology and analytics into course curricula, as Chartered Accountants Ireland has done with the introduction of data analytics, artificial intelligence and emerging technologies as part of the FAE Core syllabus.Business model and future risksArguably the most interesting findings of the study were related to understanding the business model and the future risks faced by the audited entities. At its most basic, this was what defined auditor purpose in the eyes of the young audit professionals – the job of the auditor is to understand the business, the risks it faces, and ensure that the financial statements present that reality. This aspect of the role gave them the most satisfaction: understanding the business, challenging management on their judgements, assumptions and outlook; and ensuring that the disclosure in the annual report reflected this in a fair and balanced way.In their day-to-day work, the young professionals felt that, while the audit process frequently resulted in entities making changes to their reported numbers and improving disclosures in the financial statements, this was mostly unseen by the broader users of financial statements. The participants highlighted that the pass/fail nature of the audit report did not adequately reflect the challenge and output of the audit and that, to date, the expanded audit reports had not improved this significantly.According to the study, the critical barrier to disclosing more tailored information in audit reports was the ingrained concept of a ‘clean’ audit opinion – auditors and preparers alike found it difficult to move to a less binary conclusion. A variety of themes emerged around this, including developing different forms of assurance over elements of the annual report and in particular, how audit reports may evolve to include more detail on audit judgements without creating the risk of a perception of a qualified audit. The young professionals concluded that audit reporting must evolve to accommodate more information for users on judgements.ConclusionOverall, the study provided some powerful perspectives on how our young auditors see themselves. It demonstrated that the next generation of audit leaders are passionate about their profession and are not satisfied to hide behind the expectation gap to defend the role of the auditor. Indeed, they have a strong desire to develop the role of the auditor to meet the expectations of the public and believe that this is achievable.We also concluded that as a profession, we must focus on further developing the theme of ‘auditor purpose’ to curate some simple messages and language that aligns with this deeper purpose and value of audit. In particular, we should encourage a proactive discussion and debate on auditor purpose to ensure the role of audit is understood, continues to have public interest value, and is an attractive profession.Sinead Moore is an Audit Partner in Deloitte and chairs the Young Audit Professionals Group.Paul McGarry is an Audit Senior Manager in Deloitte and a member of the Young Audit Professionals Group.

The UK Government has recently made urgent and radical changes to insolvency laws, which may help companies survive the COVID-19 crisis, write Michael Drumm and Sean Cavanagh.The Corporate Insolvency and Governance Act 2020 represents the most significant reform of insolvency legislation in over 20 years. It was fast-tracked through Parliament and became law on 26 June. The laws apply to the whole of the UK, and specific clauses relating to Northern Ireland have been included.Some of the new changes are permanent, and some are temporary. The permanent changes focus on reforms in three key areas:A moratorium;A ban on termination provisions; andA new restructuring plan.The temporary measures relate to the suspension of the wrongful trading regime, the suspension of statutory demands and winding-up petitions where financial difficulties arise directly from the effects of the COVID-19 pandemic, and some temporary extensions concerning company filing requirements.This article is necessarily high-level, and readers are encouraged to speak to their advisors to explore the detail.Permanent changesA new ‘free-standing’ moratoriumThis mechanism differs from existing moratoria in that it is a standalone procedure and does not necessarily need to be a gateway to any formal insolvency process.The application In most cases, the moratorium can be initiated by merely filing the application with the court (a court order is not required). The application must contain:• a statement by the directors that, in their view, the company is, or is likely to become, unable to pay its debts; and• a statement from the proposed monitor (who must be an insolvency practitioner) that the company is an ‘eligible’ company and that, in their view, the moratorium would likely result in the rescue of the company as a going concern.Length of the moratoriumIt will last for an initial period of 20 business days, which can be extended to 40 business days by the directors (no creditor approval required). This 40-day period can be extended for up to one year, but only with creditor or court approval. A further extension beyond one year is also possible by applying to the court.Each application for an extension must be accompanied by a statement from the directors and the monitor.Effect of the moratoriumIt will prevent the enforcement of security, the crystallisation of a floating charge, the commencement of insolvency proceedings or forfeiture of a lease.The company will not be obliged to pay most pre-moratorium debts during the moratorium, but there are some exceptions (e.g. wages and salaries, finance loans and leases). However, debts falling due during the moratorium must be paid so access to cash or funding will be vital.The monitorDuring the moratorium, the directors remain in control of the business and a monitor oversees the process. The monitor is an officer of the court and as part of their role, they must protect creditors’ interests while also ensuring compliance with the conditions of the moratorium.For the period of the COVID-19 crisis (at present, up to 30 September 2020), the monitor can disregard any worsening of the company’s financial position that is attributable to the pandemic, providing a going concern rescue is still likely.How will it end?The moratorium can come to an end via:an agreement/restructuring with its creditors, possibly via a company voluntary arrangement (CVA);a scheme of arrangement;a court order;termination by the monitor if he/she determines that the conditions have not been fulfilled; orautomatically, on expiry of the time limit.The hope is that the company will emerge from the moratorium having achieved a rescue, but if this is not the case, a winding up or administration might happen. Where this insolvency procedure happens within 12 weeks of the end of the moratorium, certain unpaid debts in the moratorium and certain other debts have ‘super priority’ for payment ahead of other debts.A new restructuring planThis new procedure will closely resemble the existing scheme of arrangement, which is a statutory legal process that allows a company to restructure its debt. It is not an insolvency procedure but must be approved by the court.The restructuring plan will require two court hearings, is likely to be technically complex, and will be expensive as a result. Thus, it may not turn out to be a practical solution for smaller SMEs in distressed scenarios.The principal advantage of the new restructuring plan is that it will offer the ability to cramdown one or more classes of dissenting creditors or shareholders. In effect, this means that even if a class of creditor does not vote for the plan, the court may still sanction a cramdown provided certain conditions are met, including that no creditor is worse off than the relevant alternative.The procedure is more likely to be used in more complex and larger distressed company scenarios, particularly with bond-holder involvement, meaning it is unlikely to be used regularly in Northern Ireland.Suspension of termination clauses for suppliers of goods and servicesWhen a company enters an insolvency or restructuring procedure, suppliers will often stop or attempt to stop supplies by virtue of the terms of its supply contract.This new Act prohibits the termination of any contract for the supply of goods and services to a company by reason of the company entering into an insolvency procedure. This will include the new moratorium procedure outlined above, administration, CVA, liquidation or a restructuring plan. However, this prohibition does not apply to schemes of arrangementAlso, a supplier company cannot insist on any disadvantageous amended terms (e.g. significant price increases). There are some exceptions to this suspension, however, such as contracts for the supply of services from insurers and banks.A temporary exemption (available during the COVID-19 period) to this supply restriction will be available to ‘small’ businesses. This may be of importance to Northern Ireland supplier companies, as many of them will qualify as ‘small’ for this purpose.A company can also apply to the court to terminate supply where it can prove ‘hardship’. ‘Hardship’ is unfortunately not defined as yet.Temporary changesThese temporary changes only apply during the period of the COVID-19 crisis.Suspension of the offence of wrongful tradingThis new Act directs the courts to assume that a director is not responsible for the worsening of the financial position of the company that occurs during this period (currently to 30 September).This reduces, but critically, does not remove, the threat of personal liability on company directors arising from ‘wrongful trading’. This temporary suspension only applies to ‘wrongful’ trading – it does not exempt directors from possible personal liability arising from ‘fraudulent trading’.Temporary suspension of statutory demands and winding petitionsThe Act temporarily removes the threat of statutory demands and winding-up proceedings, but only where COVID-19 has had a worsening effect on the company. In these circumstances, statutory demands will be void if served on a company during this period. However, a company will not be protected from the making of a winding-up order where the financial difficulties of the company would have arisen regardless of the effects of COVID-19.AnalysisThese new measures will be welcomed as they have the potential to help many viable companies that have been directly impacted by the effects of this unprecedented crisis.The intention of the new moratorium is that it will be a ‘debtor-in-possession’ process whereby the monitor acts in a limited capacity as overseer. This follows recent trends in some administrations (e.g. Debenhams) where administrators have provided consent to directors to make certain decisions via a ‘consent protocol agreement’ in what many are calling ‘light touch’ administrations.Only time will tell whether this new moratorium procedure is preferred over the traditional administration process, but recent developments certainly indicate a move towards a more rescue-orientated restructuring culture, which will surely be required to save viable businesses and address the unique nature of the upcoming economic environment.Michael Drumm is a licensed insolvency practitioner and an advisory partner at CavanaghKelly.Sean Cavanagh is a Founding Partner of CavanaghKelly, a licensed insolvency practitioner and Chair of the Insolvency Technical Committee at Chartered Accountants Ireland.

In 2010, Neil Hughes set out the seven Cs framework to help businesses navigate the great recession. Fast forward a decade, and these principles remain more pertinent than ever.Are you familiar with the old story of the two hikers in the woods? They come across a bear who starts to chase them. One hiker stops and begins changing from hiking boots to running shoes. The other hiker says, “I can’t believe that you think you will outrun the bear just because you change your shoes!” The first hiker replies, “I don’t need to outrun the bear. I just need to outrun you!” The moral of the story? When trading through difficult times, those who are best prepared are most likely to survive.Considering that the current community mentality and enthusiasm is likely to fade when the effects of the recession start to bite and businesses are striving to outperform their peers, this sentiment is even more significant. Many business owners are currently trying to adopt the best strategies to save their businesses. A common characteristic in many business failures is mismanagement. Although not deliberate, many people do not take advice, make the wrong decisions, and incur avoidable losses.With so many external factors at play, how can you best position your business on the road to recovery? What course of action do you need to take to ensure that your firm not only survives, but emerges stronger than before? The seven Cs present a blueprint for business owners and managers who are working hard to beat the competition and overcome significant challenges.1. CounselMaking well-informed and rational decisions under increasing pressure and uncertain conditions borders on the impossible, which is why seeking counsel at an early stage is the first step to pivoting a business during a crisis. How has my business been affected by the fallout from the COVID-19 pandemic? What financial shape is it in? How can I tackle the ‘here and now’ while turning my focus to the future? Avoid falling into the trap of taking unqualified advice; seek guidance from a select group of professionals such as your Chartered Accountant, your solicitor, and your funder. Work with them to formulate a practical and comprehensive recovery plan.2. CommunicationDon’t underestimate the importance of honesty, especially when things are uncertain. Communicate your financial position with the people and groups to whom you are indebted – the taxman, lenders, landlords and suppliers. You will be amazed at the goodwill this generates. Not only are your creditors likely to appreciate your honesty, but it will also take some of the pressure off, which may facilitate better decision-making. Unbridled transparency builds trust, which will help you maintain your integrity. This, in turn, will buy you more time and with time, many things become possible. Start with the truth and go from there.3. CooperationThe current crisis has changed the way we work. With businesses now forced to rely on different forms of communication, relationships between business owners and employees may have changed. Now is not the time for ambiguity. Your staff play a crucial role in helping your business stay afloat during unstable times. Communicate with them clearly and frequently. Be forthright about the condition of your business; they will respect you for it and are likely to show loyalty in return. Failure to secure their cooperation will significantly dilute your business’s chance of survival.4. Clarity of purposeCreate a new business plan that will provide greater clarity on all functions from marketing, finance and accounting to operations, products and services, and distribution. Adopt an entrepreneurial attitude. While there is no doubt that this crisis has presented grave difficulties, it also provides plenty of scope for innovation. Business leaders are stepping out of their comfort zones and thinking outside the box. There are opportunities to be found if you look hard enough. Ask yourself: “how can I ensure my business not only survives, but thrives?” Rediscover the sense of excitement you felt when you first set up your business. This will drive you forward with clarity of purpose.5. CostCost reduction should be a crucial part of your business strategy. Many business leaders will find themselves implementing cost-cutting measures in response to declining revenue, profitability, and reduced access to credit. Instigate a company-wide series of targeted cost cuts. Don’t make arbitrary or general cuts that may adversely impact long-term goals. The main areas for potential savings in any business lie in eliminating waste, seeking out and demanding the best prices for supplies and services, and carrying out certain tasks in-house that were previously contracted out to third parties.6. CashA swift recovery often boils down to one thing: cash flow. Credit controllers work hard to bring in the money and are instrumental in keeping businesses ticking over. Cash control means releasing the ‘lock-up’ of your business (i.e. the latent profit that is locked up in your stock, work-in-progress and debtors). It is a lack of cash that causes many businesses to fail during times of hardship, not a lack of profit. And even profitable businesses will fail if they run out of cash.7. CustomersWith normal operations out of whack, it may be harder for organisations to focus on exceptional customer service. However, now more than ever, customers are exceedingly important. Engage with your customers, ensuring you are adapting to their changing needs. A business owner must strive to continually ensure that the customer’s experience of a product or service is as pleasant, straightforward, and satisfying as possible. During an economic slump, it is your customers who will carry you through.Neil Hughes FCA is Managing Partner at Baker Tilly Ireland and author of Beating the Recession: The Seven Cs of Business Recovery, which is published by Chartered Accountants Ireland.

John Convery discusses the critical elements of an investor-grade business plan and what investors and venture capital firms look for in an investable business.The saying “paper never refuses ink” can certainly be applied when business plans are being written. Entrepreneurs and business owners have license to include what they want and can go overboard in producing great looking (and sounding) documents, but to what end? Venture capital firms will tell you privately how many plans pass across their desks but are discarded very quickly because they are not grounded in reality or properly thought through.There is any number of sources that proclaim to give you the formula for “how to write a perfect plan” or “how to write a winning plan”. Thanks to the web, there are now templates galore you can use in tandem. There are also multiple sites that outline what a great business plan should contain.Writing a good plan is not an exercise in producing grandiose business models and frameworks, with dazzling technical language and 2-D diagrams in brilliant, sharp colours and padding the whole lot off with forecasts and various scenarios. This sort of approach might win you a prize in a visual design contest, it will not help you raise investment.A business plan clarifies what a business is going to do, and how it is going to do it. For any start-up or established business, the process of writing a business plan is a discipline in explaining this. The article will therefore focus on what is required to produce an investor-grade business plan, what should go into the plan,     and what investors or venture capital firms look for before they invest in a business.Function and roleThe business plan is a blueprint for a business; it is essential if you are thinking of starting a business and is also an important tool for any established business. It is not static; rather, the business plan for any business will change over time as the business develops and as objectives change. For any start-up business, here are strong reasons why you need to write one:the process of writing a business plan will challenge owners to critically examine the business potential. It will test and serves to clarify the feasibility of the business idea;it allows you to set out your goals and prioritise business objectives;it allows you to measure what progress is achieved; andit is required to attract investors and secure funding.ContentsIn terms of length, an investor-grade business plan of 10-20 pages is reasonable. The key elements and content should include the following:1. Executive summary: the most important part of the business plan, the executive summary is generally the last section to be written. The objective is to grab the reader’s attention, sell the investment opportunity, and to get the potential investor to read the entire plan. It should be succinct and no longer than two pages. The key elements are:Opportunity: in a nutshell why is your product great and what customer problem will you solve? Explain the pain-point, your solution, and what are you offering.Product: describe its benefits and what it can deliver.Value proposition: who is the target market, your customer, and why will they want to buy it? What are the benefits?Marketing strategy: how will you reach your customers and what are your distribution channels?Competitive advantage: who is the competition? What is your competitive advantage?Business model: how will you generate revenue, and from whom? Why is your model scalable?Team: who are the management team, and why will they succeed?Financials: include highlights from the P&L for the next three years, cash balances, and headcount. Explain how you will reach your revenue targets.Funding: how much funding is required, and what will it be used for? Outline plans for future funding rounds.2. Product/service solution: what is it, what does it do, how does it work, who is the typical customer, and why is it different?3. Value proposition: explain the problem your business aims to solve. Where is the pain? Quantify the benefits for your customer in terms of money or time – and remember, the pain must be large and the benefits meaningful to convince a customer. Skip the technical jargon and be customer-centric.4. Market and opportunity: explain the overall industry and market dynamics. Segment the market by customer group and identify your target customer. Quantify the total market size and market opportunity of your addressable market. Use charts or graphs if necessary but remember that all figures should be from accredited sources and referenced.5. Competition: list and discuss all your competitors. Include any product/service that could be a substitute or alternative for your customer and outline how you compare with competitors.6. Competitive advantage/edge: some call this the secret sauce. How are you differentiated from your competitors? Detail your sustainable competitive advantage, highlight any barriers to entry that might keep your competitors away, and explain why any customer would buy your product/solution.7. Business model: how will you make money, who pays you, and how much do you keep after any expenses? Explain all sources of revenue from your customers and explain how your model is scalable.8. Marketing/sales strategy: this is your ‘go to market’ strategy. How will you reach your customers? Will you choose direct sales, partners, resellers or web? Include pricing and how much will go to channel intermediaries; provide a timeline of key milestones.9. The team: detail founders and key members, their qualifications, experience, track record, and domain knowledge. Include any advisory board members or industry figures involved with the business.10. Financial projection: for a start-up, include one-year detailed P&L data, cash flow prediction, balance sheet by month, and annual summary figures for three years thereafter highlighting key figures in P&L, cash flow and headcount. Also, what and when is your peak cash requirement? Cash is critical, and the cash flow statement is the key one. For an established business, include P&L, balance sheet for the last three years, and project P&L, cash flow and balance sheet by month for the next three years. For any financial projection, outline all key assumptions used. These must be based on sober and pragmatic reasoning, clearly justify growth assumptions, and highlight the peak cash requirement and break-even point.11. Funding requirements: explain the amount of funding required for the business. How much is being provided by other investors? State what the funds will be used for and show how much existing founders and owners have provided to date.12. Exit strategy: discuss the opportunities for investors to exit such as an acquisition, trade sale or IPO (beware, IPOs are only for the very best companies). Highlight trends in the market and give examples of valuations relevant to your business, but don’t go overboard and perhaps discuss your aim to build a truly sustainable business.Business plan pitfallsDo not make exaggerated claims. Business plans are meant to inform and reassure, not entertain, readers. Avoid the following types of statements or claims unless you can back them up with robust evidence:according to Gartner, the market is worth X billion; we only need Y% of this.we have no competition.our product is vastly better than anything else available.we can be number two in the market within 12 months.our technology is superior.customers will switch to our product.we will be profitable within 12 months.we can repay our investors after three years.our mission-critical kit is best of breed.we plan to target multiple overseas markets.we need to pay top salaries to attract top people.we want to retain the maximum amount of equity possible.It generally takes at least four years to reach €1 million in annual turnover, and that is if you are exceptionally lucky. It generally costs twice as much and takes you at least twice as long as you think it will to get there.Raising financeA start-up will typically go through different stages of funding sources as it moves from idea stage to product development, testing, initial customer validation and on to generating revenue. Initial funding will be provided by the founder, family and friends. Sooner or later, the founders will need to seek seed funding, which might be provided by an angel investor or seed venture capital fund. When a business seeks to raise outside finance from an investor or venture capital firm, they will look for the following criteria:Team: investors ultimately back people, not ideas. This is the number one criterion. They especially like those with deep knowledge and great experience; they will focus on track record and achievements.Market: they will seek a large market opportunity and strong growth rate. If the market has barriers to entry, better again. It needs to be big to support the returns many venture capital firms seek.Sustainable competitive advantage: a clear competitive advantage or unique selling point over others.Technology: great technology is a fundamental requirement now.Scalability: clear potential to grow in overseas markets.High gross margins: this reduces the amount required for working capital.ConclusionWithout a well-prepared and researched business plan, there is little chance of attracting outside funding. For a reader, the plan should be:credibleplausibleimplementableinvestableIt goes without saying that the plan should be grammatically correct, with no spelling errors. It should also be page referenced with no mistakes in the financials and look professional overall.John Convery is a business adviser to start-ups and small businesses. In the October issue, John will consider why so many start-ups fail, and how to improve the chance of success.

Michael Clohosey considers the economic impacts of COVID-19 based on a series of interviews with business executives in the Zurich region.Switzerland shares some similarities with Ireland. Both are small countries with very open economies and punch above their weight on the global stage. Both economies also have a high reliance on the services sector, with the pharmaceutical/healthcare industry a large proportion of the industrial sector. Based in the Zurich area for almost ten years, I thought it would be interesting to share some perspective from this part of Europe, focusing on the impact of COVID-19 on businesses in Switzerland. I interviewed finance leaders from various industries, and this process provided some interesting perspectives on the current crisis and offered a view of its medium-term impact.The type of industry in which businesses are active is the main determinant of the impact of COVID-19 in Switzerland. For example, one domestic electrical supply company involved in electrical installations for both commercial and residential property felt only a marginal impact on demand. Another company involved in the production of control devices for heating and ventilation systems, and which has a much larger global presence, is forecasting a slight decrease in demand in the medium-term. On the other hand, an international education company suffered an immediate, almost complete drop in revenue. Once countries started to impose restrictions and prohibit essential travel, this required enormous effort and collaboration from their external partners to ensure that their students abroad were safe and could find a way to get home. While facing a severe decline in revenue and an uncertain future, the firm needed to focus solely on the welfare of its customers stranded in locations like South Africa, China and Australia.Business responseThe logistical response of the Swiss Government, including the travel restrictions, is well-covered in other sources. I will instead focus on the Government’s economic response to the crisis, which was quite strong – even if it was not immediate. One must remember that Switzerland is not part of the EU and does not, therefore, have ready access to the financial safeguards and protection the EU provides. In total, the Swiss Government set aside more than €61 billion to support the economy. This will create a massive deficit in the national budget, but the amount that must be borrowed is significantly lower due to the Government’s large cash reserves. Some economists estimate that the debt to GDP ratio will increase from 26.7% in 2019 to approximately 34% in 2020, easily meeting the eurozone’s Maastricht criteria. The Government’s measures, which focused on different target groups, aimed to safeguard jobs, guarantee wages and support the self-employed. Measures were also taken in the field of culture and sport to prevent bankruptcies and to cushion the financial consequences. Furthermore, there were provisions to delay payment and temporarily waive late payment interest on social security contributions and various taxes.Many businesses availed of this support, especially those in the travel and tourism trade. I know of many companies that eased their liquidity concerns by quickly accessing interest-free government loans of up to CHF 0.5 billion. Companies affected were also entitled to apply for what is termed “short-term working”. This was extremely helpful to the restaurant sector, from which employees were made temporarily redundant. Provided employees were still paid full salaries, employers received 80% of the cost from the Government. Rental payments remained privately managed. Some landlords were open to negotiation, especially where there were obvious financial difficulties on the tenant side. This flexibility to negotiate seemed to vary depending on whether the landlord was a private or commercial institution. Solutions found included deferral of rent payment. In an apparent contradiction, there appeared to be cases where landlords were more open to negotiating when they saw that the tenants were granted access to the Government’s interest-free business loans.There were short- and medium-term impacts on business, including the supply chain. One company that supplies leather to Asia for shoe manufacture suffered a drop in production due to the difficulty in exporting raw materials. Ship cargo returning from Asia was almost non-existent, and any possible exports were therefore changed to air cargo. An educational travel company I spoke to needed to review agreements with all educational partners abroad due to the number of re-bookings where students sought to change school. As we see with the airline sector, re-bookings are preferable to cash refunds. However, this is cumbersome in the educational travel industry due to the number of actors involved. Some firms changed their business models. Third-level institutions, for example, were in the main very quick to react. They established management task forces and brought their curricula online. Online education is one of the fastest-growing global industries, and the pandemic has only increased its expansion.Focus areas also changed in finance departments. The old maxim of “cash is king” was never as important as it is now. Companies that were not so well accustomed to short-term cash planning even hired external consultants to create 13-week cash forecasts. Fixed yearly budgets increasingly became rolling forecasts, with new scenario planning to account for the effects of the pandemic.Seven insights from the COVID-19 crisisA comprehensive review of organisations’ state of preparedness for such an unforeseen circumstance, their reactions to it, and the enforced planning for a new economic reality produced many new lessons. It also underlined the importance of established business principles.Business agility: we saw the importance of agility in how quickly some educational establishments brought their curricula online. Many advanced education establishments are already planning to generate a greater share of revenue through e-delivery.Securing the supply chain: it is very difficult to plan for an almost total transport shut-down. However, we saw in the example above of the shoe production company that alternative methods of transport can be put in place, albeit at a higher cost and risk. This same firm also discovered and used shoe manufacturers closer to the source of the raw material.Strong partnerships: strong business relations, especially with suppliers and customers, are more important than ever in times of crisis. One company I interviewed closed one of its largest partnership deals through online meetings. This was mainly due to the trust already created.Working from home: many firms, especially those in the financial services industry, have identified that productivity has not decreased while employees have worked from home. This has allowed them to offer it as an alternative for the future. In some cases, property leases can be reviewed due to the resultant decreased need for office space. It is therefore expected that the dynamics of cities like Zurich, which until now had large office space occupied by banks and financial institutions, will partially change in the future.Discretionary travel: discretionary costs, especially travel, were already in focus before the lockdown. The fact that many businesses functioned quite well without travel has led to a further appraisal of its value.Cash is king: the funds disclaimer says “past success does not guarantee future performance”. However, past success in the form of cash reserves can guarantee business survival in such times. Even more attention should be paid now to short- and medium-term cash planning.Scenario planning in forecasting: we have seen how macro events can have a drastic impact. Businesses can increase their ability to respond by replacing traditional budgeting with frequently updated forecasting models, which include scenario planning for changes in the economic environment. The conventional practice of involving all departments for budgets or forecasts can be reviewed to facilitate the agility required. Responsibility for financial planning and forecasting cannot be delegated from the finance function.A snapshot of the economic impact of the crisisAs Switzerland and Ireland are (at the time of writing) emerging from travel and business restrictions, I thought it helpful to review some key indicators of the financial impact of the recent upheaval. According to projections from the OECD’s latest economic outlook, similar to the world economy, Switzerland and Ireland are not expected to be at Q4 2019 levels of GDP until Q4 2021. This is projected for each of the two scenarios, which they estimate are equally probable. One scenario anticipates a second wave of infections with renewed lockdowns before the end of 2020. The other scenario anticipates the avoidance of another major outbreak. Refer to Table 1 for the historic percentage changes to real GDP and forecasted changes to real GDP based on economic projections for a single wave of infections.Switzerland and Ireland are expected to suffer similar declines in GDP. This perhaps is logical, given that both economies are driven mainly by the services and pharmaceutical/healthcare sectors. Interestingly tourism, one of the most severely affected industries, is not a very significant part of total GDP; it represents approximately 3% in both countries. Table 1 shows that Switzerland and Ireland have recorded quite different increases in real GDP in the last 20 years. Switzerland’s growth rate has been very stable at an average of 2% per annum, and almost exactly replicates the growth rate of ‘advanced economies’. Ireland’s growth rates, on the other hand, have been higher and much more variable.Putting recent lessons to workIt is not surprising that the global pandemic has impacted the economy in Switzerland as much as it has in Ireland and the rest of the world. People have changed their behaviours, both involuntarily and voluntarily. I have acquaintances who, up until the crisis, never purchased items online. I am sure that countless others in Ireland have just recently started shopping on their electronic devices.The online education industry is booming. Businesses have been quick to change their supply chains and include alternatives. They have also altered their business models, which we see most markedly in the education sector. Perhaps the increased effective use of video communications tools like Zoom and Skype has brought the possibility of education for the masses to greater prominence.The importance of classic principles, like strong partnerships based on trust and communication, has not diminished with decreased face-to-face contact. In fact, the opportunities for many more partnerships have actually increased in line with people’s confidence in, and use of, the internet. Global industry round-tables can be attended from one’s own home and without all the time and travel that was before deemed necessary. Amid the adverse effects of recent months, let us aspire in Switzerland, Ireland and elsewhere to consolidate and develop the positive aspects and put the lessons to work in our businesses.Michael Clohosey FCA is a senior finance executive based in Switzerland.