In this article, Richard underlines how Covid-19 has reinforced the importance of focusing on the financial health of business owners and not just of their businesses.
ICAEW Chartered Accountant, former chair of various committees and current ICAEW Personal Financial Planning Advisory Group member, Richard Bertin, established and built up a successful fee-based wealth planning business. Following its acquisition in 2016 by Stonehage Fleming, the largest independent family office in EMEA, he continued to further build the group’s private client financial planning arm before leaving last year to establish Tether, which is launching personal financial planning software to the accounting profession, combining his previous accountancy and business development experience and knowledge.
The UK economy has close to 6 million businesses within it, the majority being SMEs or micro entities. Since the outbreak of Covid-19, many of these businesses have leaned heavily on their accountants for support on funding solutions, furloughing, tax deferral and rewriting cashflow forecasts for the next 12 months.
Our profession has shown amazing agility in this crisis, for the majority, upskilling overnight. Whether on the protocol of video conferencing or digging deep into the options for corporate borrowing through CBILs, BBLs or ordinary banking facilities.
Perhaps Covid-19 has highlighted the role of the chartered accountant as the true trusted advisor. A typical business relationship may revolve around compliance, such as accounting and tax reporting alongside advisory planning on salary and dividend extraction for the business owner. However, on a sixpence, chartered accountants have raised the bar, going beyond their core service proposition, and have done so with confidence, and by now, a large degree of exhaustion, I suspect.
At the Institute we are rightly focused on the sustainability of our planet and the role accountants can play in it. However, countries and governments are currently focused on the sustainability of their economies in the short to medium term.
Policymakers walk the tightrope of caring for the health of the nation, whilst trying to “keep business alive.”
The role of the accountant in practice - why it is different now?
Fundamentally, the financial health of an SME or micro business drives the financial health of the business owner. Some businesses will have prospered in Covid-19, but for many, they will neither expect to make a profit this financial year, nor be cash positive.
At the same time, the business owner may well have kept themselves going with some personal savings, a mortgage holiday for three months and by deferring their July 2020 tax bill (to January 2021).
As previously mentioned, our profession has stepped up to the plate and dealt with the needs of the business (furloughing, tax deferral, etc.) but has not really balanced this with the “financial health” of the business owner.
What will happen in January 2021? Many clients take a dividend in January to pay their personal tax bill. Without profit or reserves there is no dividend cover. Furthermore, CBILs and BBLs should have been taken out to support working capital or investment and not to replace dividends.
Personal financial planning and business planning go hand in glove. When salaries and dividends get cut, this impacts the owners’ pockets too. How many accountants have a real handle on their clients’ personal cashflow? This has nothing to do with ISAs and pensions, i.e. the perceived domain of personal financial planning, but about client survival, and not just the business as a legal entity.
What should accountants in practice do?
In some ways we have had a temporary reprieve with the cancellation of the Autumn Budget. However, that is primarily because the Chancellor does not feel comfortable making policy decisions in the middle of a second Covid-19 wave.
This should not give the profession any reassurance.
The traditional levers of the accountancy profession have been about tax optimisation or tax reduction. The revised advisory proposition for the accountancy profession should be anchored around meeting business owners’ cashflow needs going forward - “business and personal.” Accountants must really understand what their clients’ personal cash needs are, so that they can help the business plan, or even survive, accordingly.
The FCA requires financial advisors to undertake a “Know Your Client or KYC” factfinding process. This Covid-19 crisis has highlighted that accountants need a holistic understanding of their clients’ finances to advise on the business, otherwise there is a risk that business advice is given in a vacuum.
Many accountants may wince about delving into their clients’ personal affairs, but this is counterintuitive. The profession has spent the last six months meeting their clients virtually, in their kitchens, dining rooms, elsewhere inside their homes talking about their personal lives.
Accountants are the “trusted advisor" and now need to get to grips with being the “personal financial advisor” and not just the business advisor.
Maybe, the profession needs “KYC” mandated on them? Perhaps chartered accountants in practice should not give “salary and dividend” advice, without a “suitability check”. Put bluntly, you need to understand your clients’ personal finances more fully before giving advice, just as you would their business.
In the short term, it is a must for business survival mode. What is the point in keeping the liquidator at bay, if you let the trustee in bankruptcy through the back door?
The views expressed are the author’s and not ICAEW’s.