The deteriorating economic outlook means the UK will likely enter a recession soon.
This is caused by several factors, including inflation rising to 10.1% (the highest level for forty years), increased interest rates and spiralling energy costs.
The latest figures from the Office for National Statistics (ONS) show that GDP fell by 0.1% in the quarter to June 2022. The Bank of England are now predicting that the UK will enter a recession later in the year.
A data point that shows the challenges facing businesses is Xero’s Small Business Index (based on anonymised data from hundreds of thousands of UK companies) revealing that it’s now waiting longer to get paid by invoiced customers. In June 2022, they were paid 30.6 days, whereas, in December 2021, companies had to wait 29.0 days.
In this environment, it’s critical accounting firms prove their resilience to safeguard the interests of employees and partners and to be in the best possible position to help steward their clients through whatever comes next.
Bobby Lane, CEO of Factotum, a multi-disciplinary outsourcing practice, was a partner at Shelley Stock Hutter (later acquired by Blick Rothenberg), through the 2008 recession. He says:
“Don’t panic! With change comes opportunity. Many clients will be looking for additional support from their accountants, so make sure you can deliver the services they need. Watch your clients closely as things may change rapidly, and if a client is struggling, you do not want to face increasing bad debts, so managing cashflow is key.”
Alongside Bobby’s pearls of wisdom, it’s worthwhile considering the following tips to navigate your accounting firm through a recession successfully:
1. Continue to invest in technology
You may be tempted to cut back on technology for practice management and client delivery work, but doing so will impair your ability to produce accurate and real-time data to clients and manage clients effectively.
Using software add-ons such as expense management, receipt capture, and cashflow forecasting streamlines processes so that maintaining and producing accounts take up minimal time.
Removing these software partners now can cost you more than you are saving, as staff will have to step in to complete these processes manually.
2. Review and cut costs
Review internal costs to identify wastage and optimise spend. As the shift to hybrid and remote working looks like it’s here to stay, office rent is an obvious one to cut.
As it’s rare to get a break clause on offices less than five years, moving into a serviced office space that can be renewed annually may be worthwhile.
Additionally, you may want to reconsider future hiring plans to minimise costs, as well as an opportunity to be more agile for busier periods and respond to clients’ needs.
Outsourcing compliance work can be an effective strategy as you can scale resource in line with demand and have certainty on how much jobs will cost to complete.
3. Focus on advisory services
Advisory services are higher margin than compliance, so an enhanced focus on these can increase revenues and profits to bolster firm performance
The likes of R&D tax credits, access to finance and registration and management of EMI share schemes are relatively light touch but are more lucrative than producing annual accounts and VAT returns.
These services are likely to be in demand in the current environment due to clients having their cash positions squeezed.
If you don’t have the expertise to deliver these in-house, it may be possible to partner with third parties and benefit from commissions.
4. Define a strong company culture
The “great resignation” is leading to many employees quitting en masse, and salaries for accountants are increasing.
AccountingWeb community members are seeing increases of around 20%.
Setting a strong company culture will help retain existing employees and minimise the need to hire new ones who may be more expensive.
This can include allowing employees to work remotely (if they do not do so already), arranging quarterly social events, letting staff leave early on fridays afternoons, and access to learning materials to help staff build their knowledge and develop their careers.
5. Build out your financial forecasts
Increasing costs and the possibility of late payments from clients mean you need to watch over your own financials like a hawk.
This will allow you to identify any short-term cash falls, and based on the output of forecasts access to finance or invoice factoring may be sought.
For closer to real-time visibility, move away from spreadsheets and seek out cloud solutions such as Futrli Fathom, or Float, to do a lot of the heavy lifting.
6. Treasury management
Firms that are in the fortunate position of holding large cash balances should make the most of rising interest rates by holding funds in high-interest accounts.
For example, Virgin Money currently offers a business fixed rate savings account with an interest rate of 2.2%. This won't keep up with the pace of inflation, but every little helps.
Accountants with high overseas costs may also wish to consider taking out forward contracts to give certainty on how much these transactions will cost them, irrespective of FX rates changing.
7. Optimise working capital and maximise operational efficiency
Late payments can put a strain on cash flow, take time to chase up and can be damaging to client relationships.
Working with an automated end-to-end credit provider, such as Chaser, will allow accountants to get paid sooner and increase the likelihood of recoveries without needing to devote valuable staff time to chase payments.
This covers the entire lifecycle of invoices, from credit checking new and existing clients to outsourced debt collection services.
Personalised payment reminder SMS messages and emails also take the sting and friction out of client relationships.
Other effective working capital strategies include asking for increased credit terms from key suppliers and paying invoices via the Faster Payments network. This results in transactions clearing in around 30 seconds so suppliers can be paid on the exact day they fall due so cash can be held on to for longer.
Every cloud has a silver lining
An economic downturn can create uncertainty but also presents an opportunity to firms to demonstrate their resilience and put in place processes and technology to generate sustainable growth over the longer term so make the most of it.
