The 5 key qualities of a successful FD
Accountancy Age Insight have promoted a whitepaper from Exchequer: The 5 key qualities of a successful FD. What they say about FDs applies equally, in my view, to accountants in public practice: To remain successful and dynamic, FDs need to be resilient to change and have the ability ‘to think outside of the box’ to ensure their organisation is best placed to drive their business forward. ‘Number crunching’ has become just a single thread of the growing number of qualities that FDs need to possess.
The Exchequer guide considers what key qualities the modern FD needs to not only perform well but to meet the demands of the changing market. You can access the paper from here. Registration is required.
Moving to Cyberspace
Another whitepaper from Accountancy Age Insight comes from Sage: Moving to Cyberspace.
Tired of mountains of paperwork stacked upon every conceivable space in your office? Many of the more traditional accountants still work in this way, but transferring your business online can help you maintain a clutter-free workspace and improve efficiency. Moving operations online can be a daunting prospect, but the rewards can be great. If planned properly, you can be working from a new hosted or cloud system within days. You can almost think of it as an online filing cabinet for your business that only you and others you trust are able to access.
Sage’s whitepaper studies why accountants should consider moving to Cyberspace and the main reasons for switching. You can access the paper from here. Registration is required.
HMRC approaches record ten million self-assessment barrier
The ten million barrier for self-assessment tax returns is set to be beaten this year as HM Revenue & Customs confirmed it had already received 7.8 million submissions to date, with a further 2.6 expected by the 31 January deadline. Last year, a record 9.61 million filed their returns on time by what is one of the busiest days of the year for accountants and tax practitioners. Read the full article here.
China hits back at SEC over audit ban on US listings of Chinese companies
I picked this up this morning. Remember the blog I did last week on US auditors of Chinese companies? Now, according to the South China Morning Post, China has warned the United States of “consequences” after the Securities and Exchange Commission (SEC) barred the four largest accounting firms from conducting audits of US-listed Chinese companies. The decision to ban the Chinese affiliates of the accounting firms for six months “ignored” China’s efforts and progress made on cross-border regulatory co-operation, the China Securities Regulatory Commission (CSRC) said.
“We hope the SEC will take into consideration the big picture of China-US regulatory co-operation, make the right judgment to resolve the situation properly,” the CSRC, the nation’s securities body, said on its microblog yesterday. “The SEC should bear all responsibility to possible consequences arising from the decision.”
Should we be worried that the Chinese have used the word “consequences”. What do they mean I wonder?
There were so many stories yesterday about KPMG that you could almost say that the last Monday in January is to be called KPMG day. Their PR machine must have been very busy. Here are some of the stories I found:
- SEC fines KPMG £5m for independence violations: KPMG has agreed to pay $8.2m (£5m) to settle charges by the US Securities and Exchange Commission (SEC) that the firm violated the rules around auditor independence in its work for three US clients listed on the New York stock exchange. The SEC said its investigation found that KPMG broke auditor independence rules at various times from 2007 to 2011 by providing prohibited non-audit services to affiliates of companies whose books they were auditing. In one case this involved restructuring, corporate finance, and expert services, and at a second client the firm provided accounting and payroll services. Read about it here.
- KPMG retains Standard Chartered audit: Standard Chartered Bank has announced that it is to retain KPMG as its external auditors following an open tender which was widely expected to usher in a change after the firm’s forty-plus years’ tenure. In a statement, the bank said it had disclosed its intention in its 2012 annual report to undertake a tendering process during 2013 for the group’s statutory audit work, ‘in line with the UK Financial Reporting Council’s recommendations’. Read about it here.
- KPMG predicts wave of M&A: There are signs of increasing pressure on corporates to carry out transactional activity, according to a study from KPMG. According to the firm, predicted forward price-per-earnings ratios – a key measure of confidence or appetite – were 16% higher in December 2013 than they were a year earlier, and up 17% since June. And on top of that is increasing pressure for businesses to embark on transactional activity, as markedly reflected in the performance of their share prices. Read the full story here.
- Big business fails to get to grips with big data: An overwhelming majority of senior executives across the world’s largest organisations accept that their long-term business success will be based on mastery of the growing amount of data at their disposal. Yet despite recognising its value, less than 1 in 10 believe they are in a position to make use of the information held on customer preferences, behaviour and demands. Most of the CFOs and CIOs questioned for a new report, released on 27 January by KPMG, admitted that they do not know how to analyse the data they have already collected (85 percent). Worryingly, more than half (54 percent) also identified their greatest barrier to success at an even more basic level – an inability to identify the data worth collecting. Read the full story here.
- Female delegates at Davos are dominating social media: For the second year, running female delegates at the World Economic Forum (WEF) meeting at Davos are outperforming their male counterparts on social media, according to KPMG International. WEFLIVE, a social media site run by KPMG that aggregates Twitter activity from all WEF delegates, showed that while women delegates account for only 15 per cent of the total delegate population, they are responsible for 25 per cent of all WEF delegate social media activity, second only to ‘Media’ at 29 per cent. Read the full story here.
Here is a quick round up on news that should be of interest to accountants, auditors and finance directors.
Accountancy Age Insight allows you to keep up to date with the most recently added briefings to its online service. Now they have added a video from Sage on UK GAAP.
Whilst the new UK GAAP is not effective until 2015, early adoption is possible and now is the time to start preparing for the changes. This video provides a quick summary of how you can start preparing for the transition to FRS 102 now. Check out of short video for a summary of the changes including:
- What is new UK GAAP?
- Why are the changes taking place?
- Key milestones to look out for.
- Preparing for the transition.
Details are here.
IPSASB issues governance consultation paper
IAS Plus has reported that the Governance Review Group of the International Public Sector Accounting Standards Board (IPSASB) has issued a public consultation paper on the future governance and oversight of the IPSASB and IPSASs. The consultation paper focuses on governance and oversight processes in the setting of accounting standards for the public sector and proposes changes to strengthen the position of the IPSASB and IPSASs.
The consultation paper includes:
- Background of the IPSASB.
- Existing standard setting models.
- The oversight and governance of the IPSASB.
- Proposal for strengthening the IPSASB’s governance.
- Specific questions to consider.
Details are here.
Time-to-Pay rules for settling tax debts: HMRC clarification
HMRC has issued a briefing explaining the process for individuals and businesses if they have problems paying outstanding tax bills, some of whom may be eligible to restructure tax debt under the ‘Time to Pay’ scheme. The taxman says that those facing financial difficulties, which could be a result of business setbacks or a life event that temporarily affects their ability to meet their financial commitments, should inform HMRC immediately as they may be eligible for a ‘Time to Pay’ arrangement.
Time-to-Pay is an agreement between HMRC and a taxpayer that allows fixed repayments of a tax debt to be made over an agreed period and can be considered for all types of tax debt. To ensure that it can recover all payments due in full, HMRC will consider certain criteria, including the taxpayer’s previous payment history and their plan for repayment, before agreeing to this arrangement. However, HMRC stresses that Time to Pay is not an automatic right and should ideally be sought before a debt becomes due, although a possible arrangement can still be considered after a due date. Penalties can be avoided if a Time-to-Pay arrangement is agreed before the due date.
Read the full story here.
There were a couple of announcements from HMRC last week on the subject of tax avoidance and their promotion. Here are the links:
Signing the wrong will
A Supreme Court ruling that a couple’s intended heir should not be disinherited by a mix-up in the signing of mirror wills could lead to a flood of litigation, probate experts said this week. They were commenting following the judgment in Marley v Rawlings and another, in which Lord Neuberger, president of the Supreme Court, said that the wills of Maureen and Alfred Rawlings should be treated in the same way as a commercial contract in that an obvious oversight should not be allowed to invalidate the testators’ wishes.
The case concerned mirror wills which Maureen and Alfred Rawlings drafted in 1999 intending to leave their entire estate to Terry Michael Marley, who was not a blood relation. However, due to an alleged oversight by a solicitor, the two accidentally signed each other’s will. You can read the full story here.
This blog looks at some old, even odd, number rules. We live with them all the time and often refer to them.
The 80:20 rule
The other day I was reading the Bizezia publication: Glossary of Marketing Terms and, for some unknown reason, arrived at the definition of the Pareto Principle: The 80:20 rule: 80% of an outcome will come from 20% of effort.
Wikipedia describes the Pareto Principle in more detail:
- The Pareto principle (also known as the 80:20 rule, the law of the vital few, and the principle of factor scarcity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. Pareto developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.
Wikipedia goes on to say that it is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients”.
But F. John Reh writing here puts it differently. He says: “The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn’t going to get done, make sure it’s not part of that 20 percent.”
His article concludes: Apply the Pareto Principle to all you do, but use it wisely.
There’s a good article by Kalid Azad, here.
Do you believe in the Pareto Principle and if you do, how has it helped you in your business or private life. Please email me at email@example.com or comment below.
The Rule of 72
Then, I came across another mathematical rule this week. It’s called “The Rule of 72”. It enables you to estimate the effect of any growth rate if you want to double your money. The formula is: Years to double = 72/Interest Rate.
You can use this formula for any financial estimate using compound interest. Some examples are:
- At 6% interest, the millions you have in savings takes 72/6 or 12 years to double.
- Since nobody I know gets 6% on their money, let’s take 0.5% which is what most banks pay. At that rate, your money takes 72/0.5 or 144 years to double.
- To double your money in 10 years, you will need an interest rate of 72/10 or 7.2%.
- If your country’s GDP grows at 3% a year, the economy doubles in 72/3 or 24 years. 3% isn’t on the horizon for the UK, the estimated annual growth rate has now risen from 1.5% to 1.9% (see here) so it will take 72/1.9 or nearly 38 years to double.
The Rule of 37037
Have you heard of the rule of 37,037? It’s quite simple really although I haven’t worked out why it works. Just multiply 37,037 by any single number (1-9), then multiply that number by 3. Every digit in the answer will be the same as that first single number. Try it. Then perhaps you can explain to me why it works and what can be done with this invaluable information.
The Rule of 78
As every accountant knows (or should know) the Rule of 78 is also known as the sum-of-the-digits method used in lending that refers to a method of yearly interest calculation.
If you take the digits, 1 to 12 and add them up, you get a total of 78. The name of the rule comes from the total number of months’ interest that is being calculated in a year (the first month is 1 month’s interest, whereas the second month contains 2 months’ interest, etc.).
When I was a student accountant, I was told about this rule since finance companies and banks used it to calculate the interest spread over the loan period. So, if the loan was for a 12 month period, the interest accrued 12/78 ths in the first month, 11/78 ths in the second month and so on until the 12th month at which time 1/78th of the interest is that month’s portion of the total interest charge.
I was taught to apportion the interest cost to include in accounts using this method. The method was used by lenders to calculate how much interest to charge for loans paid off early. For example, if a 12-month loan is paid off at month 11, the lender will want 77/78ths (of the total interest to settle and allows only 1/78th rebate for early settlement.
The formula to arrive at the sum of the digits for any loan for any period is found by taking N/2 x (N+1) – where N is the number of months in the loan period. So for a 24 month period, the sum of all the digits from 1 to 24 is (12*25) = 300.
I recall that the formula was used a lot with hire purchase agreements, particularly for the purchase of cars.
Greg Weismantel, president of Epic Group, a management consulting firm and advisor on strategy for small and large firms and companies has written an interesting article on accountability in the US accounting website, here.
He says that, in discussing strategy and driving forces for the CPA (accounting) firm, the word “accountability” comes up several times but most partners and managers might not understand the difference between responsibility and accountability. He asks: How can partners manage the firm without understanding accountability? How can their people evaluate themselves if their people do not understand what the difference is between accountability and responsibility?
Not understanding accountability is the basis for a leadership management activity called “conflict resolution.” The truth is, according to Greg Weismantel, is knowing and understanding that the difference between accountability and responsibility is basic to managing a firm or company. Why?
Greg Weismantel explains:
- Normally the partner who is accountable for a particular client or brought it with a merger (we’ll call her Partner A) is accountable for all the work at that client. She, in this case, is the main contact point where all services and presentations must be approved first, or they are not provided to her client. However, not uncommon in most CPA firms, Partner A also has other responsibilities, and in this example she is also the partner in charge of compliance in the firm.
- She has the work or responsibility of ensuring that all the tax and audit and other services that are used by her client are fully implemented, with full authority to dictate which services are made available to her client. But she also has authority for all compliance issues and decisions within the firm for all clients.
- So you can see three key elements of accountability in this example. First there is the work or the responsibility that Partner A must undertake for her own client, along with the authority to fully make every decision about that work with her client. The third element of accountability occurred when Partner A agreed with the managing partner to accept the responsibility and authority for her client. But what about compliance?
The normal organisational structure of a CPA firm (and an accountancy firm in the UK) of any size is not a traditional functional type, but more of a matrix, where various other people are responsible for doing the work of tax, audit, accounting or compliance, but are not accountable for the client per se. Partner A is accountable for the client. Why? Because she has authority for any decision made for that client, and the various other people performing the work do not have that authority. Is she also accountable for the tax and audit metrics for the client?
… An interesting question. Simple answer: does she have authority to dictate the tax and audit metrics? And now you can understand the difference between responsibility and accountability within a firm.
By definition, “Accountability is the combining of the responsibility, the fixed duties or work, along with the authority given by a higher level to complete the responsibility, and agreed to by the individual accepting the responsibility.”
The author’s observation is that in most companies and firms, many managers and partners do not know who is actually “accountable” for every facet of management, and this is where most conflicts arise.
Let’s take the usual annual budgeting process in a CPA firm. Who is accountable for the tax and audit budgets for the firm, or the compliance budget? It could probably be assumed that Partner A would be accountable for the tax and audit budgets for her clients, but the partner accountable for tax or audit could also assume that he is accountable for the tax and audit budgets for the firm, and all the clients. Conflict.
When the managing partner says to a director or partner who is responsible for the construction industry, “Give me your next year’s forecast for profits for your industry,” the tax partner and the audit partner both have hours that they have projected for each construction client. Who is accountable for the forecast, the construction industry partner or the tax partner or the audit partner? Conflict.
This could start to get messy, and it usually is caused by the fact that partners and managers in the company or firm do not know, understand and practice the difference between accountability and responsibility. It can be the source for a lot of hard feelings toward members of the firm in other situations as well, but is easily resolved when each person understands the activity of accountability.
There is a simple solution to every accountability issue, and here’s a tip: trace the line of authority for each responsibility or work, and you will find out who is accountable for that work, and in this example, for the budget.
The good thing about knowing who is accountable and not responsible for a scope of work is that it allows self-evaluation to occur by the accountable individual, while allowing the managing partner to recognize great performance as well as taking action to improve inferior results by the accountable person.
In any firm or company, until clear lines of authority are established for any work or responsibility, you will always find conflict between partners, directors and managers.
But keep in mind, it does not matter “who” is accountable, it just matters that the firm “knows” who is accountable for a particular work. That is what resolves all conflicts automatically.
The US accounting website, accountingTODAY, informs us that The American Institute of CPAs (AICPA) has issued additional guidance for CPAs who offer personal financial planning (PFP) services.
The AICPA’s Statement on Standards in Personal Financial Planning Services has been issued to “provide authoritative guidance and establish enforceable standards for members practicing in PFP”.
The statement is effective from 1 July 2014.
The standards build on the AICPA’s existing oversight of CPAs whose clients are seeking advice on more and more topics.
This is something that will happen in the UK as well, I am sure.
The AICPA Statement covers all aspects of the planning process, including obtaining information and communicating and implementing recommendations. The standards are enforceable and require complete transparency on factors such as compensation and potential conflicts that could influence client decision making and must be followed by all AICPA members who do work in financial planning.
The AICPA noted that more of its members have begun offering personal financial planning services as more clients turn to CPAs for help navigating financial issues such as taxes, retirement planning, education planning, estate planning, investments and risk management.
Membership in the AICPA’s Personal Financial Planning Section has increased 32 percent over the past five years, and the Bureau of Labor Statistics has projected that the number of personal financial advisors will increase 27 percent nationwide between 2012 and 2022.
You might like to refer to the AICPA’s Statement on Responsibilities in Personal Financial Planning Practice which was originally adopted in 1992.
The big question for me is whether Accountants, and for that matter Lawyers too, in the UK are missing a trick. If accountants in the US are grasping the opportunity to get into financial services, maybe it’s worth look at. There has been a lot of growth in the IFA sector in the UK (heavily regulated, I know) but there has been a lot of negativity and criticism too.
It’s happened at last. A draft agreement between the European Parliament and EU Council, yesterday, follows a trilogue process which broke down towards the end of last year after MEPs couldn’t agree a position to move the process forward. Now we can expect legislation to open up the EU audit services market beyond the dominant “Big Four” firms and remedy auditing weaknesses revealed by the financial crisis. See the press release here.
Improvement of audit quality and transparency is included and the aim, we are told, is to prevent conflicts of interest and “reform weaknesses in the audit market” (particularly in the audit tendering practices used).
Why is this happening?
The role of auditors was called into question due to the financial crisis. “Reform of the audit market is long overdue and the proposals that were voted through today are unprecedented. This draft legislation will have positive ramifications, not just for the audit market, but for the financial sector as a whole. We are rebuilding confidence, one step at a time”, said Sajjad Karim (Legal affairs spokesperson, ECR, UK), the person responsible for the audit reform package and who has led the process since its inception.
What’s in the draft?
· Better quality auditing: The law would require auditors in the EU to publish audit reports according to international auditing standards. For auditors of public-interest entities (PIEs), such as banks, insurance companies and listed companies, the agreed text would require audit firms to provide shareholders and investors with a detailed understanding of what the auditor did and an overall assurance of the accuracy of the company’s accounts.
· Opening up the EU audit market to competition and improving transparency: As one in a series of measures to open up the market and improve transparency, the agreed text would prohibit “Big 4-only” contractual clauses requiring that the audit be done by one of these firms. PIEs (see above) would be obliged to issue a call for tenders when selecting a new auditor.
· Rotation: To ensure that relations between the auditor and the audited company do not become too cosy, MEPs agreed on a “mandatory rotation” rule whereby an auditor can inspect a company’s books for a maximum of 10 years, which may be increased to 10 additional years if new tenders are carried out, and by up to 14 additional years in the case of joint audits, i.e. when a firm is being audited by more than one audit firm. The Commission had proposed mandatory rotation after 6 years, but a majority in committee judged that this would be a costly and unwelcome intervention in the audit market.
· Independence of non-auditing services: To preclude conflicts of interest and threats to independence, EU audit firms would be required to abide by rules mirroring those in effect internationally. Moreover EU audit firms would generally be prohibited from providing non-audit services to their clients, including tax advisory services which directly affect the company’s financial statements.
The deal will be put to a vote by Parliament as a whole, when it will be put before 751 MEPs for their consideration at a plenary session in Strasbourg, between 14 and 17 April.
Most interesting for me is that the proposals include a prohibition on Big Four-only contractual clauses. It’s a bit like the guidance given out to managers in the 1980s and early 1990s: “Nobody ever got sacked for buying IBM equipment”. The next few tiers of firms after the Big Four will have to get their act together and their PR machines in action to convince boards and shareholders across Europe and beyond that not only are they up to the job but they can actually do a better job.
There are probably four ways in which a firm can maintain relationships with its clients and prospects in providing technical and other information in response to a request for information.
1) The first option is to buy in publications from publishers. The problem with this is that it is a costly thing to do, the information contained in the publications can easily go out of date and it’s a clumsy way of providing information to those who ask for it. What happens in practice is that there are piles of brochures in the corner of an office, gathering dust.
It was a good idea 28 years ago when I launched the CharterGroup partnership because small to medium sized firms couldn’t afford to write or publish their own brochures, so they had to be syndicated and bought in from a group publisher. But today clients and website visitors want more. Storage of paper publications is difficult and they often get thrown away after they’ve been read.
2) The next option is to subscribe to a digital business library and have hundreds of brochures and publications available via your website 24 hours a day, every day of the year. This has several advantages: because the publications are digital they are up to date and once clients and prospects register on your website they can simply take what they need and when they need it.
Also, the publications cost nothing to distribute via an on-line mailing (I’ve written some words about MailChimp below) and your on-line showcase can include features such as page turning functionality. Even better still is that the actual cost to a firm of a digital library is a fraction of that for printed publications under option 1.
3) The third option is to do nothing. This option costs nothing. Clients get nothing that they need. Prospective clients avoid firms that do nothing and move to firms that provide details of their services and issue free publications.
4) The last option is for a firm to write their own publications and then publish either in paper form (as in option 1) or in PDF digital format. The problem with this option is that accountants and lawyers don’t have any time to do this sort of thing. Even when they find a few minutes to do so, the end result isn’t very smart and is often a mis-mash of design and content.
Be honest, which firm are you?
According to research, over a third of small business owners feel isolated when making key business decisions: 43% confess to loneliness when focusing on changing strategy or direction, and another two fifths feel detached over business planning matters. Accountants and Lawyers are uniquely placed to help businesses by providing them with information direct from their website through a digital business library.
When I was in public practice as an accountant, I set about creating a digital business library. It took me about 10 years to get it right. However, it was all worthwhile as Bizezia’s Online Business Library now leads the market with a comprehensive collection of 650+ professionally-written informative publications that you can offer free to your clients direct from your website. The publications cover an extensive range of business topics from tax to marketing. You name it, there’s probably a publication in the library to cover it.
Digital publications will allow you to add significant value to the service you offer your clients, and help you build relationships with prospective clients. The “do nothing” option is awful. Please don’t do it.
Bizezia’s Online Business Library
Bizezia’s Online Business Library is probably the UK’s largest and best known. It features over 650 publications. Every publication is personalised and branded to your firm and available for your clients and prospects to download from your website. These business publications provide valuable information on diverse subjects such as law, finance, marketing and management. The Online Business Library is an impressive knowledge resource. Best of all: It underlines your credentials as a knowledgeable, professional firm. It differentiates your firm from others in your locality. You can find details on how to subscribe here.
You can watch the video about it as well.
MailChimp I mentioned MailChimp above. Perhaps I should explain what it is. MailChimp is a web-based email marketing service. It helps you design email newsletters, share them on social networks, integrate with services you already use, and track your results. Whatever the size of your firm, MailChimp has features and integrations that will suit your email-marketing needs.
You can create signup forms that match your firms’ brand’s look and feel, and send updates, event invitations, announcements, or editorial content. You can use their reports to improve your campaigns and learn more about you’re your clients and prospects (MailChimp call people you email “Subscribers”).
And do you know the best thing of all? MailChimp is free for lists of up to 2,000 subscribers. And the free bit allows you to send out 12,000 emails a month.
Try it here. We use it at Bizezia. More than 5 million people use MailChimp to create, send, and track email newsletters, brochures and other digital communications to customers, clients and prospects. About 6 billion emails are sent out every month.
There’s a saying, or rather a comment, I picked up from a very smart Scottish accountant who had become an MBA teacher at a leading US Business School. He said that often, accountants and finance directors suffer from something called analysis paralysis. It’s the state of over-analysing (or over-thinking) a situation so that a decision or action is never taken, in effect paralysing the outcome.
Has that ever happened to you? Or worse still, have you been guilty of doing it yourself.
There’s nothing wrong in analysing numbers provided you measure the result.
With this in mind, I’ve taken look at some of the tools within the Bizezia Calculators and Evaluators product and thought it would be useful for my readers to review what these tools do. The results from these tools should be used as a guide only and clients should consult an experienced or qualified accountant or financial/business adviser before making any decisions.
Borrowing Risk Calculator
Are you serious about reducing borrowing costs? Would you like to know the ‘secrets’ of how your banker assesses a lending proposal and the business in terms of risk?
The Borrowing Risk Assessment Tool, which is intended for use as a guide only, has been developed as a guide to:
1. Show you what you can do to get a lower rate of interest on borrowings by reducing the risk.
2. Help you to identify your ‘escape routes’ if you hit a financial hole.
3. Help you improve your relationship with your bank.
Business Growth Calculator
Based on the well-known “Four ways to grow a business” popularised by Michael Gerber, Jay Abraham and many others, the Business Growth Calculator is designed to calculate the change to the gross profit of a business arising from altering any or all of:
- the number of customers
- the average number of times they purchase
- the average amount they spend, and/or
- the average gross profit percentage
Most business owners don’t know the number of customers they have, or the frequency of purchase or the average sale value. The good thing about this tool is that it allows you to try various combinations until you arrive at a total sales value that is correct.
Business Health Calculator
This is the smartest of all the tools. Basically, accountants or their clients, input numbers from the accounts of the business. The calculator then produces a lengthy series of meaningful ratios, including:
- Profitability Ratios
- Liquidity Ratios
- Operational Ratios
- Solvency Ratios
Then, the calculator does something quite amazing. It works out something called the Z-Score, which indicates financial health (or sickness) of the business. It also indicates the short-term potential for financial problems at your company. The expert who devised the Z-Score is Professor Edward I. Altman, who is known as the founding father of using statistical techniques to predict company failure.
The Z-score was developed from an analysis of 33 bankrupt manufacturing companies in the US with average assets of $6.4 million. Altman’s system, basically a “bankruptcy indicator,” can be used by stockbrokers trying to determine if a company is a good investment, and also internally, by anyone who wants to take a close look at his or her own company’s financial health.
Accountants can even use it on their own firm’s results.
Altman’s Z-score calculates five ratios: return on total assets, sales to total assets, equity to debt, working capital to total assets, and retained earnings to total assets. These ratios are then multiplied by a predetermined weight factor, and the results are added together. The final number, the Z-score, yields a number between -4 and +8. Financially-sound companies show Z-scores above 2.99, while those scoring below 1.81 are in fiscal danger, maybe even heading toward bankruptcy. Scores that fall between these ends indicate potential trouble. In Altman’s initial study of 33 bankrupt companies, Z-scores for 95 % of these companies pointed to trouble or imminent bankruptcy.
In the hands of a smart accountant looking for new work from prospects, this tool could be dynamite in getting new business.
Customer Value Calculator
The Customer Value Calculator considers the effects on sales (over a 5 or 10 year period) of altering the rate of retention of customers and the referrals that customers give to other potential customers.
1. % Retained customers that give referrals
2. Number of referrals per customer
3. % Referrals that become customers
4. % Customer Retention Rate
Risk Exposure Calculator
Analysing data risk exposures enables you to estimate the degree of risk. Results fall into one of these categories:
· Very Little Risk: You either don’t have very much critical data on your computers, or your backup plan is probably adequate. Consider using a remote backup service to supplement your backups.
· Slight Risk: If you experience a non-catastrophic loss of data, you will probably be able to recover it. Generally, you are doing a good job with your backup plan, but you should consider improving.
·Moderate Risk: A loss of data from your hard disk drives may not be recoverable. Your backup plan is not adequate and you are at risk of losing data critical to the operation of your daily business.
·High Risk: Any major data loss would be catastrophic, and would probably not be recoverable. Your business is at risk of failure if you lose data.
·Extremely High Risk: Your backup plan isn’t protecting your data. You could experience an un-recoverable catastrophic data loss at any time which could cause the business to fail.
Grading High Book / Market Stocks
This tool is rather smart too. It’s based on the work of Joseph Piotroski, an Accounting Professor at the University of Chicago who reasoned that because value stocks are troubled companies by definition, many are financially distressed and won’t have the financial resources to recover. Pondering on whether he could improve the performance of a value portfolio by throwing out the financially weakest stocks, he devised a simple nine-criterion stock-scoring system for evaluating a stock’s financial strength that could be determined using data solely from financial statements. One point was awarded for each test that a stock passed. Piotroski classed any stocks that scored eight or nine points as being the strongest stocks. His findings were that these strong stocks as a group outperformed a portfolio of all value stocks by 7.5% annually over a 20-year test period. Piotroski also found that weak stocks, scoring two points or fewer, were five times more likely to either go bankrupt or delist due to financial problems.
The evaluator goes through these stages:
· Net Income: Positive net income – Net income, the bottom line after-tax profits, is the simplest measure of profitability. Score 1 if the latest year’s net income is positive; otherwise, a zero.
· Operating Cash Flow: Cash flow is arguably a better profitability measure than net income. Cash flow measures the money that actually moved into or out of a company’s bank account; Score 1 point if the latest year’s operating cash flow is positive, otherwise, a zero.
· Return On Assets (ROA): Earnings quality – Many experts compare net income to operating cash flow to detect potential accounting manipulations. Cash flow normally exceeds net income because depreciation and other non-cash expenses reduce income, but not cash flow; Score 1 point if the latest year’s operating cash flow exceeds the current year’s net income, otherwise, a zero.
· Quality of Earnings: Warns of Accounting Tricks. Score 1 if last year’s operating cash flow exceeds net income, otherwise, a zero.
· Long-Term Debt (LTD) vs. Assets: Is Debt decreasing? Score 1 if the ratio of long-term debt to assets is down from the year-ago value, otherwise, a zero. (If LTD is zero but assets are increasing, score 1 anyway.)
· Current Ratio (CR): Measures increasing working capital. Score 1 if CR has increased from the prior year, otherwise, a zero.
· Shares Outstanding: A Measure of potential dilution. Score 1 if the number of shares outstanding is no greater than the year-ago figure, otherwise, a zero.
· Gross Margin (GM): A measure of improving competitive position. Score 1 if full-year GM exceeds the prior-year GM, otherwise, a zero.
· Asset Turnover: Measures productivity. Score 1 if the percentage increase in sales exceeds the percentage increase in total assets, otherwise, a zero.
Overall, it’s a pretty impressive list, I think you’ll agree. All these tools and about 50 more can be available to accountants, clients and prospects. They sit on the accountants’ website and are available 24-hours a day, 365 days a year and are accessible from anywhere in the world with an internet connection, on a PC, Mac, iPhone, Smartphone, Android or whatever fancy equipment may be used. There is no set-up fee for these tools, just an easy, affordable payment option with a minimum 12 month subscription. Details here.
Instead of the restricted functionality available with other online calculator packages, where users can only calculate results in a one-dimensional way, Calculators & Evaluators incorporates Bizezia’s interactive Lead-Generation Technology. This allows users to:
- Print results
- Share results with friends and colleagues by email
- Export results to Excel
- Export results to PDF
- Ask for an e-mail alert when the selected Calculator/Evaluator is updated
- The opportunity to request more information from an accounting firm hosting the tools on their website using the Contact Us feature.
Bizezia is so confident that you and your clients and customers will enjoy using the Calculators & Evaluators that it comes with a 30 Day Money-Back Guarantee. If, within 30 days of the start of a subscription, you think that Calculators & Evaluators is not for you, Bizezia will refund your full subscription, with no questions asked.
If you want more information, call me on 01444 884221 or contact me by email at firstname.lastname@example.org
I was interested to read about a BDO report, (read it here) written by the Economist Intelligence Unit which, for the first time has unveiled the impact of poor customer service on businesses worldwide.
The report shows that businesses admit widespread customer service failings are hitting their bottom line:
- Nearly two thirds of companies worldwide find bottom lines significantly hit by poor service
- One in four companies have failed to invest in customer service in the past two years
The survey of more than 800 senior business leaders around the world reveals that almost two thirds (59%) of all companies admit that a customer service failing has had a clear, significant impact on financial performance.
The survey also revealed:
- A quarter have lost customers as a result of poor customer service (27%)
- Service failings have hit the share price of one in seven companies (15%)
- 23% have had to compensate customers due to poor service
- 84% of the companies, surveyed believe that customer service is ‘very’ or ‘moderately’ important to their financial performance, but only a third of companies (36%) currently have a strategy to link service and bottom line.
- Despite customer service draining profits for many, one in four (27%) businesses have made no investment in service whatsoever in the last two years. In addition, less than a third of companies (28%) have a designated head of customer service on the board.
- Only a quarter (29%) of business leaders feel being seen to be customer focused is key to career progression. Indeed, employee and other internal issues are taking precedence over customer concerns in nine in ten organisations (89%).
The report also finds that for many companies engagement is still low-tech: 36% of companies use social media to engage customers and just 15% believe social media will become the most important method of engaging with customers – more than a quarter believe its importance in 2020 will be the same as it is now.
Allan Evans, Global Head of Clients and Markets at BDO, said “Boardrooms are blinkered – even with clear evidence that poor service is hindering profitability, businesses are failing to invest in, track or apportion sole responsibility for service. We’re calling for more companies to put service on the boardroom agenda and have a clearer focus on the link between service quality and the bottom line. Only then will companies be able to develop clear and effective strategies to make a return on service.”
Monica Woodley, the EIU’s Managing Editor, commented: “It’s clear many businesses find themselves in a service catch 22 situation. Companies intuitively seem to understand customer service impacts financial performance, but they are unsure how to make a clear link with the bottom line. So they don’t prioritise service at a board level because they don’t fully understand it, and they don’t fully understand it, because they don’t prioritise it. More businesses need to take action now to break this service cycle or risk losing out to competitors.”
Jo Causon, the Chief Executive of the Institute of Customer Service, added: “Financials tell the CEO where the organisation has been, but customer satisfaction data gives good indications of where it is going.”
Accountants are ideally placed to help businesses in this area. Those that attended the RAS Boot Camps in the 1990s have been busily imparting to their clients (and other firms’ clients too) everything they learned about customer service. As someone once said “Most businesses don’t actually want an accountant. They want someone to help them become more successful and profitable.”
To me, it makes perfect sense to provide the best service you can to your customers. This will result in the business being more successful and profitable. In February’s Better Business Focus publication, there’s a story about a young manager called Zhang Ruimin took who, 30 years ago, took control of a loss-making fridge factory in Qingdao, China. He was appalled at the low standards of workmanship and quality in its products. In a dramatic expression of his wrath he gave out sledgehammers and asked factory workers to join him in smashing 76 faulty fridges in front of a large group of shocked employees.
The message was clear – poor quality was no longer acceptable. Since then Zhang has focused on quality, innovation and branding in order to build the company, Haier, into the largest appliance maker in the world with a turnover of over $26billion. One of elements of Haier’s success was learning from customers. For 4 years running the company has been voted the World’s No. 1 home appliance retailer. There’s a shed-load of customer satisfaction emerging from China.
Email me at email@example.com and I’ll send you the Better Business Focus publication when it is available.
The phone rings. You answer it and find that a possible new client wants to come in “as soon as possible” to see you for an initial chat about a business issue. The caller explains that he has been recommended to your firm by one of your best clients. He has in mind a free initial consultation. You arrange to meet later that week.
You start to think about the issue the caller mentioned. It’s a complicated matter but you have the necessary experience to help him. It could be quite a large amount of business for your firm.
Your thoughts focus on the amount you might be able to charge if your firm were to be appointed by this new client. He’ll probably get two or three quotes from other firms, but there are only a few people around who are able to do the work involved, so that puts you at an advantage, doesn’t it?
A “free initial consultation” is what he said. He’ll explain his problem and you’ll listen. But, he can’t expect “free advice” can he?
The Legal Ombudsman, in its guide for lawyers: says (here): ‘Some firms offer free initial consultation meetings. It is reasonable for a lawyer to charge an initial consultation fee if they wish to, but they must make any charges and conditions clear to a consumer before the appointment is made. The charge made must be reasonable. The consumer should know where they stand when they walk through the door and not hear of any charge, if there is one, at the consultation.’
Ellen Freedman writing in the US in PA Law Practice Management, here, raised some very sensible points about the initial consultation with a prospective client. I think that everything she says applies to lawyers, accountants and other professional firms. It’s worth reading what she has to say. Briefly:
- If you already have more work than you can handle, it’s time for other actions, such as raising your fee rates, getting rid of unprofitable or undesirable clients and improving your intake screening techniques of prospects.
- There are many seemingly genuine prospects out there who just want to pick your brain for free. Don’t allow it, not even under the guise of wanting to show how helpful and valuable you will be. Ellen recommends that you always charge an initial consultation fee, and to set a time limit on the initial meeting. Insist that payment be made before or at the beginning of the initial consultation.
- If you want, you can provide the prospect with a credit on their first bill for the amount paid during the initial consultation once they become a client. In this way you can still provide a free initial consultation, with the caveat that it is free only for those who ultimately become clients.
- If you charge an initial consultation fee, it will eliminate all those “fishing” for free information. And if you have a referral source who sends lots of “bad” referrals with the occasional “good”, it will gracefully do the weeding for you without embarrassing or discouraging your referral source.
In most cases, the prospective client is trying to decide whether to engage your firm and to see whether you have the knowledge and experience to help him. They also want to find out what it’s like to deal with you and your firm.
Try having a free initial consultation with a brain surgeon. You won’t get one.
My advice is the same as Ellen’s. Charge for the initial meeting, tell the prospective client (in writing) that you’re going to charge and (most importantly) bill it either before or immediately after the initial meeting.
And when the prospect says yes, you have achieved what you set out to do. What do you do next? Celebrate – No! What you should do get the terms of the engagement agreed as soon as possible.
Setting out your terms of business with your clients, with specific agreement on the work you do for them and the fees you charge, is the only sensible way to deliver professional services. To do anything else is professional suicide. Our professional bodies have been telling us for years that we must issue engagement letters. When something goes wrong, not having an engagement letter is going to bring you plenty of problems and cost you a lot of money.
Some years ago, I created an engagement letter system (called Contract Engine) to simplify the whole process, eliminate uncertainty with the client, and make it very easy to agree terms. Find out what it does, here. Statistics gathered by the AICPA Professional Liability Insurance Program in the USA emphatically stress the importance of engagement letters. More than two-thirds of professional liability claims in that Program arise from client allegations of professional lapses in tax practice and in approximately 25% of all claims made, the client alleged that the scope of the engagement went beyond the services which the accountant believed he or she had agreed to perform. The resulting claim then alleged that when performed, these disputed services were performed negligently.
So, have your meeting with the prospective new client but bear in mind all that’s been said above. And, by the way, good luck!
Before I start, I should say that none of the remainder of this post is legal or other advice. Whilst every effort has been made to ensure that the information given in this note is accurate, at the end of the day only the courts or tribunals can give authoritative interpretations of the law.
Last week, Birmingham City Council were front page news having agreed settlements with thousands of women who were paid less than male workers who did equivalent jobs. BBC News reported that one law firm is said to be dealing with 4,000 outstanding cases. The legal claims over equal pay are said to total more than £1bn.
So, what’s all the fuss about?
It stems from The Equal Pay Act in the UK which is designed to eliminate discrimination as regards pay and other terms and conditions between men and women in the same employment when they are employed to do:
- Like work – work that is the same or a broadly similar nature
- Work rated as equivalent – that is, in jobs which a job evaluation study of part or all of their employer’s workforce has shown to have an equal value
- Work of equal value – that is, in jobs which are equal in value in terms of the demands made on them under headings such as effort, skill and decision-making
Men as well as women are entitled to equal pay for equal work, but in practice most claimants are women.
A complainant, the fancy legal term for the person bringing a claim, must choose an actual comparator of the opposite sex who is treated more favourably and is shown to be employed on “like work”, “work rated as equivalent”, or “work of equal value”. Equal value involves a comparison of the work of the claimant and the comparator under various headings such as effort, skill and decision.Equal value claims can be made using comparators paid under different grading systems, collective agreements or job evaluation schemes.
The Equal Pay Commission recommends that all employers carry out equal pay audits. This will help in identifying any potential vulnerability to equal pay claims. An equal pay audit is the best and most effective way to compare the pay of employees doing equal work and it provides a detailed picture to identify and put right any unlawful pay discrimination. There a useful toolkit on the Equality and Human Rights website, here.
The Equal Pay Act refers to the “same employment”, a term that has to be interpreted in the light of European law. Anyone thinking they have been unfairly treated by their employer will need to get legal advice on interpretation of the law by domestic courts and the European Court of Justice.
The Equality Act 2010 replaces the previous anti-discrimination laws with a single Act. It simplifies the law, removing inconsistencies and making it easier for people to understand and comply with it. The majority of the Act came into force on 1 October 2010. The Equality Act 2010 gives women (and men) a right to equal pay for equal work. It replaced previous legislation on equal pay, including the Equal Pay Act 1970, the Sex Discrimination Act 1975, and the equality provisions in the Pensions Act 1995. The provisions relating to equal pay are known as ‘the equality of terms’ provisions and are scattered throughout the Act, but are brought together in the Equal Pay Statutory Code of Practice.
There a useful glossary of terms used in connection with equal pay here.
From October 2014, The Enterprise and Regulatory Reform Act 2013 requires Employment Tribunals to order employers to carry out an equal pay audit, where they may have breached equal pay provisions under the Equality Act 2010, except in prescribed circumstances. The Act can be viewed on the UK legislation website here.
Is your firm exposed?
Obviously, Birmingham City Council is a big target. But compliance with the law on equal pay could become a nightmare for accountants and lawyers – in fact for any professional firm.
So, how do these firms go about checking whether they have any exposure? Going through the following brief checklist could help.
Equal Pay Checklist – Are you exposed? (© Copyright 2014, Bizezia Limited)
o Have you paid a male employee a bonus or given a pay rise but have not done the same for a female employee because she is on maternity leave?
o Have you restricted sick pay, holiday pay or pension benefits of a female employee because she works part-time?
o Have you put male employees on individual contract and told them not to discuss the terms with female employees?
o Have there been any mergers or acquisitions where pay rates for the same job have never been harmonised?
o Have jobs changed over time but because no job evaluation or other review has ever taken place, the growing similarities between jobs have not been recognised?
o Are there any similar jobs which were originally paid at the same rate but one of the jobs is now done by a part-time worker who does not have access to the same total pay package as her full time male colleague?
Author’s Note: this checklist is not complete. I intend to update it as events unfold.
Over the next week or so, I shall be adding to the checklist and probably add it to the online Calculators and Evaluators – see here. It will be useful tool for professionals to introduce the issue to clients as a value-adding service, and of course for businesses to use themselves. I’ll also be talking to law firms to see what expertise is available on this matter.
In the meantime, please email me with your thoughts on the matter to firstname.lastname@example.org.
I’m pleased to say that the Bizezia 2014 Tax Calendar is now available, here.
It’s an interactive tax reminder for your website. Tax Calendar is a great way to ensure your clients and prospects never forget their tax dates, and it’s a valuable resource which will help attract and retain website traffic, generate leads and enhance existing client loyalty. Bizezia’s Tax Calendar is a value-adding website tool which interactively displays relevant tax dates.
The Tax Calendar contains 3 different calendars for different types of user:
- self-assessment taxpayers
- companies and employers
- partners and partnerships
The people viewing the calendar can choose the following viewing options:
- year view
- month view
- list view
The calendars are simple to use with colour-coded clickable graphics to represent the tax dates occurring. You can access any of these views from all parts of the calendar.
Lead Generation Technology
Tax Calendar is not only a useful resource for clients and prospects; it goes one step further by giving users the opportunity to request more information from the host accountancy firm using the Contact Us feature. This innovative technology brings prospects to your door.
· All key dates are covered for Self-Assessment Taxpayers, Companies & Employers and Partners & Partnerships
· Key dates are presented by month, by year or as a downloadable list
· Easy to use with colour-coded clickable graphics to represent the tax dates
· Online, on-demand delivery through your website
· Choice of colours to match your website
· Tax Calendar is updated automatically by Bizezia
· Contact Us
· No programming experience required on your part
· No set-up fees, just an easy and affordable monthly or annual payment option with minimum 12 month subscription
· Free support from Bizezia
· Attract and retain website traffic
· Generate leads
· Build existing client loyalty
· Provide a useful knowledge resource for your clients and prospects
· Keep yourself up-to-date with this valuable tool
There is no set-up fee for Tax Calendar, just an easy and affordable monthly or annual payment option with a minimum 12 month subscription.
Bizezia is so confident that you and your clients and customers will enjoy using Tax Calendar that it comes with a 30 Day Money-Back Guarantee. If, within 30 days of the start of a subscription, you think that Tax Calendar is not for you, Bizezia will refund your full subscription, with no questions asked.
If you want more information, call me on 01444 884221 or contact me by email at email@example.com
Best-selling author Malcolm Gladwell studied the lives of extremely successful people to find out how they achieved success. Gladwell’s book Outliers popularised the work of K. Anderson Ericsson and the notion that the key to success in any field was logging 10 years or 10,000 hours of practice. It’s worth reading The Influence of Experience and Deliberate Practice on the Development of Superior Expert Performancei, here.
Does this resonate with you?
Louis Pasteur, inventor of pasteurisation, is said to have remarked in a university lecture, “chance favours the prepared mind.” But how much preparation is enough? If you’re a fan of Malcolm Gladwell’s work, you know the answer: it’s 10,000 hours of preparation.
Based on research suggesting that practice is the essence of genius, Malcolm Gladwell has popularised the idea that 10,000 hours of appropriately guided practice was “the magic number of greatness,” to achieve success. In his book Outliers, Gladwell says that it takes roughly ten thousand hours of practice to achieve mastery in a field.
It sounds like an interesting idea and it’s one that has been getting quite a lot of attention recently and the idea has come under fire. Critics argue that the “10,000-hour rule” is over-simplified and doesn’t account for genetic differences. In The Sports Gene, former Sports Illustrated senior writer David Epstein (author), points out some contradictions to Gladwell’s rule – for example, that athletes at the same level of competition can have very different amounts of practice time or playing experience, and that success in sports isn’t determined only by how much an athlete practices.
In an article posted on line in the New Yorker last year Gladwell, here comments on his theory and supports the research findings he reached.
In his new book, Focus: The Hidden Driver of Excellence, best selling author of Emotional Intelligence (which I first read during my MBA studies in the late 1990s), Daniel Goleman says “The ‘10,000-hour rule’ – that this level of practice holds the secret to great success in any field – has become sacrosanct gospel, echoed on websites and recited as litany in high-performance workshops. The problem: it’s only half-true.” Read more on what Goleman says in a posting on Huffington Post, here.
My view is this. To achieve success you need to be able to see things that exist and envisage something new, plus all or some of these:
- An innate skill or aptitude
- Commitment /Perseverance
What do you think?
Bizezia has a publication on achieving success in business: 130 Reasons why some people are much, much more successful in business than others. Some of these reasons come from mega-successful entrepreneurs while others come from working with small businesses, over the last 40 years.
If you would like a copy of this publication, please email me at: firstname.lastname@example.org
Deloitte’s IASPlus has mentioned, here, that the European Financial Reporting Group (EFRAG) has issued two ‘Short Discussion Series’ (SDS) papers on (1) equity method and how it can be considered as a measurement basis, a one-line consolidation or a combination of the two and (2) the implication for standard setting of the academic literature review. The EFRAG has initiated the ‘Short Discussion Series’ in order to promote debates that address topical and problematic issues in financial reporting among European and other constituents. For more information, see the press release and the Short Discussion Series paper on the EFRAG website.
The Institute of Chartered Accountants in England & Wales (ICAEW) published some guidance on the Money Laundering Regulations. It says that the 2007 Regulations require a risk-based approach to money laundering procedures. Is this demonstrated in your money laundering documentation?
The article “What QAD found when they reviewed firms in 2012” in August 2013 issue made very clear that many firms do not have a money laundering risk assessment for all clients. What about your firm?
There are three levels of risk assessment:
• a generic risk assessment for the firm;
• an initial risk assessment for new clients, determining how much due diligence evidence is required;
• an ongoing risk assessment determining the level and frequency of ongoing monitoring.
It’s worth reading this paper, details here. Soon, once the new 4th Money Laundering Directive is implemented, the Government will be required to prepare a risk assessment for the UK, and filter it down to the regulated sector to use when producing their own firm-wide risk assessment.
For further information see ICAEW’s previous articles:
· Assessing risk for money laundering purposes: part 1
· Assessing risk for money laundering purposes: part 2
· Assessing risk for money laundering purposes: part 3
· Assessing risk for money laundering purposes: part 4
Disclosure rules push up fraud cases in finance
Tighter regulations have led to a spike in reported fraud in financial services firms and in money laundering, research out today claimed. Overall reported fraud fell from £1.37bn in 2012 to £1.05bn last year, marking the second consecutive year of falling total values. However, the figures are likely to underestimate the overall level of fraudulent gains in Britain, as many cases go unreported or fail to make it to court, said BDO, which conducted the research. Details are here.
Auditors believe companies are losing battle against cybercrime
A KPMG report reported on in Accountancy Age shows that audit committees believe poor quality data is hampering cyber protection efforts across businesses. The number of auditors with concerns about cyber security has doubled in the last year and businesses are losing the battle against cybercrime as a result, Accountancy Age’s sister title Computing reports. The survey of audit committee members found the quality of information provided to auditors is becoming increasingly unsatisfactory, raising fears that cyber safety has taken a step back and making the task of minimising risk much more difficult. Details are here.
Accountants to investigate RBS
We’ve all heard about banks going over their customers’ figures when they’re worried. Now, the boot is on the other foot. Mazars are to investigate RBS, the ICAEW reported in Economia. Under the spotlight is RBS’ treatment of small business customers in financial difficulties and the allegations of poor practice set out in the Tomlinson report. RBS has been appointed, together with Promontory Financial Group, by the Financial Conduct Authority to carry out an independent skilled persons report under s166, Financial Services and Markets Act 2000. Details are here.
Older accountants take note
Apparently, older accountants approaching retirement are increasingly concerned about their options thanks to a range of changing work and financial options and pressures, says the Chartered Accountants’ Benevolent Association (CABA). Details are here. CABA reports that it is receiving an increasing number of calls from accountants aged between 55 and 70 who are looking for guidance in a wide range of areas. CABA provides a series of resources for those of retirement age on its website, caba.org.uk, and has recently held “Preparing for Retirement” courses in conjunction with ICAEW.
ICAEW and CABA have also teamed up to provide a website where volunteers can search for roles and where not-for-profit organisations can look for volunteers.
What’s happening in the USA?
One of the indicators of a reviving economy — the purchase and sale of small businesses — is picking up steam. According to the just released BizBuySell Insight Report, the number of business exits by small business owners in the USA was up 49 percent in 2013 compared to 2012. In 2013, 7,056 US small business sales were reported by brokers, a large spike over the 4,730 transactions reported in 2012. The report reflected the improved business performance as the median revenue of small businesses rose 13 percent to $405,905 and median cash flow grew 9 percent to $97,000. Strong financial improvement, in turn, helped push the median sale price up 13 percent to $180,000.
What’s your price?
Of all the issues that impact on practice profitability, pricing has the biggest effect, says an article from ICAEW in advice for Members in Practice: Increasingly, clients expect fixed fees quoted in advance. For a specific assignment, assuming the price is accepted, every additional pound quoted (and recovered) goes straight to profit. Every pound of discount given comes straight out of profit.
Please take the time to read this article, here. Perhaps the best tip is about pricing for preparing tax returns. This introduces premium pricing for clients who bring their books in late. While the dates and percentages vary a lot, a typical structure might be:
– 100% of normal fee if the books are received before 31 October;
– 110% if received during November;
– 120% if received during December; and
– up to 150% if received during January.
The case of the disappearance of lawyers following “mass cull”
The Solicitors Regulation Authority confirmed on 17 January that 136 firms of lawyers were forced to close because they could not obtain professional indemnity insurance. The firms had entered the Extended Policy Period after 1 October and were given 90 days to secure cover, or face immediate closure on or before 29 December. Could this ever happen to accountants? The story is here.
But generally, law firms continue to rebuild profitability as the economy recovers and they enter a ‘settling-down’ phase, according to a respected annual bellwether of the sector’s financial health: the Financial Benchmarking Survey, published by the Law Society’s Law Management Section (LMS) and covering the 2013 accounting year. Practices are also upbeat about their immediate prospects, forecasting a small year-on-year increase in their rate of growth in 2013/14. The story is here.
HMRC sets new record for asset seizures from self-employed
City A.M. report that HM Revenue and Customs (HMRC) set a new high of 1,488 asset seizures over the last year from self-assessed taxpayers who could not pay bills. Tax officials took a harder line than ever, said finance firm Syscap, adding that the majority facing penalties were self-employed professionals such as accountants and solicitors. HMRC increased the use of its power of “distraint” against self-assessment tax debts by eight per cent from the 1,376 cases in 2011-2012. The tally more than doubles the 730 seizures of 2010-2011. The story is here.
Barclays ends free banking for most SMEs
Some 40% of your SME clients who bank with Barclays won’t feel too happy today. Barclays is moving more than 500,000 business customers onto a new set of accounts over this year, to consolidate its SME (small and medium enterprise) operations. Around 60 per cent will be better off or pay no more than £1.50 per month extra, the bank said. But that leaves 40 per cent, around 220,000, paying more. The story is here.
Don’t miss the news. It happens every day. And it’s on EziaNews on the Bizezia website at: http://www.bizezia.com/newsindex/
Earlier this week, AccountancyLive reported that there has been a 160% rise in the tax take from HMRC’s investigations into payroll tax avoidance and the use of employee benefits trusts (EBTs) for the payment of salaries and bonuses to the top earners at some of the UK’s biggest companies, according to analysis by law firm Pinsent Masons.
Pinsent Masons says its calculations show HMRC investigations into payroll irregularities brought in the staggering sum of £533m in extra tax in the last year, compared to £205m the previous year, amid “signs that HMRC is cracking down on the use of both EBTs and Employer Funded Unapproved Retirement Benefit Schemes (EFURBS) as a means of reducing tax liabilities”.
The law firm says HMRC has been trying to tackle the use of EBTs, which can also generate a claim for corporation tax deductions, for over a decade, but is now starting to make headway as a result of winning some high profile court cases and changes in tax legislation in 2010.
Ray McCann, partner at Pinsent Masons, said: ‘We expect even more activity by HMRC in the coming year as they look to close other loopholes with the aim of bringing in even more revenue in 2014. For companies with EBT schemes that have been called into question, time is running out. If they do not settle with HMRC they will face direct action and, if HMRC gets its way, far more severe penalties.’
McCann predicted that new penalties for pursuing appeals in hopeless tax avoidance cases announced in the Autumn Statement are likely to spur employers to reach early settlements, as HMRC is expected to invoke these against any remaining EBT schemes that appear reluctant to settle.
In a statement HMRC said: ‘We will not allow the abuse of employee benefits trusts (EBT) for tax avoidance purposes. The government has made almost £1bn available to HMRC to police the tax rules and we have specialist inspectors making sure any past abuse of EBTs is effectively challenged and the tax paid.’
[15 January 2014, BBC News] Nearly 11 million tax returns are expected to be submitted by the deadline but some 110,000 higher-earning parents who receive child benefit payments face a fine if they fail to register for, and return, tax self-assessment forms.
The deadline for submitting online tax returns is 31 January, with 10.9 million expected to be filed to HM Revenue and Customs (HMRC) by then.
Many people, who face a tax charge because they receive child benefit, will be filing for the first time. Tens of thousands of them have yet to register with the deadline looming. They face an immediate penalty of £100 if they miss the deadline.
This penalty could grow by hundreds of pounds if they fail to submit the returns during the following months.
Benefit rule changes
Those eligible for child benefit receive £20.30 per week for the first child and £13.40 a week for any subsequent children.
Child benefit amounts depend on the number of children in the family. However, a change in the rules by the government has affected families where one parent has a taxable income of more than £50,000.
If they continued to receive child benefit after January 2013, then they must pay some of that back in a tax charge. If one parent has a taxable income of more than £60,000, then they must pay it all back.
In order to do so, they must first register and then complete a self-assessment tax return by the end of January. An estimated 90% of the 1.1 million parents affected have already registered, or opted out of receiving child benefit entirely. That leaves about 110,000 people who have yet to register. The process can take more than a week to complete, as they will need an activation code to be sent in the post, so HMRC has urged them to act now.
“The registration process is easy. We know that many parents are newcomers to self-assessment, so it is really important they register and file online to avoid getting a penalty,” said Lin Homer, HMRC chief executive.
Chas Roy-Chowdhury, head of taxation at accountancy body, the ACCA, urged people to file as soon as possible. But he added that the workload of dealing with these first-time filers had been “dumped” on HMRC which was already stretched for resources.
HMRC has an online calculator to allow people to check how much child benefit they need to include in their return.
Annual tax returns are already a way of life for the self-employed and workers with more than one source of income, in order to ensure they pay the correct amount of income tax. They must file the self-assessment form for the tax year ending in April 2013.
Some 10.9 million returns are anticipated by the end of January deadline, up from 10.5 million last year and about 6.5 million have filed already.
A year ago, around 578,000 people filed on the last day – 31 January – before fines were issued.
Paper returns must have been completed and returned by 31 October, with the final 31 January deadline for online returns. Anyone who misses these deadlines faces an immediate £100 fine, even if there is no tax to pay.
After three months, there are additional daily penalties of £10 a day, up to a maximum of £900 if no forms have been returned. After six months, there is a further penalty of 5% of the tax due or £300, whichever is greater. After 12 months, there is an additional 5% or £300 charge.
HMRC will want to avoid mistakes of a year ago when 12,000 people, who were told they no longer needed to fill in self-assessment tax forms, were sent penalty notices in error.
I read (here) in an article by Michael Cohn that the American Institute of CPAs (AICPA) has released a Book on acquisition strategies for CPA firms. Mergers and acquisitions between US CPA firms are expected to continue at a strong pace this year, particularly among small to midsized regional firms.
The main drivers behind this trend include succession planning, cross-selling opportunities and market share expansion, say Joel L. Sinkin and Terrence E. Putney, CPA, co-authors of “CPA Firm Mergers & Acquisitions: How to Buy a Firm, How to Sell a Firm, and How to Make the Best Deal.”
Another overlooked factor is the search for talent, according to Sinkin and Putney. Unemployment remains low in the accounting profession, and many smaller firms find themselves in an increasingly competitive market for the next generation of leaders. As recruiting battles heat up, buying or selling a firm makes sense as a growth strategy or exit plan.
“Smart firms plan ahead,” Sinkin said in a statement. “We still see too many firms not preparing for transition, and those that wait too long may have problems finding the right fit.”
Sinkin and Putney are president and CEO, respectively, of Transition Advisors LLC, and have worked on hundreds of deal closings. In their book, they outline how firm leaders can determine the value of their practice when selling externally or to partners, avoid roadblocks in negotiation, exercise due diligence and strike a deal that offers the best value and deal structure for all parties. They also offer insight into retaining staff and clients during a transition.
The book also discusses ways to build a firm’s value before it’s time to make a deal, such as accurately assessing internal succession plans; matching a firm’s client base to its strengths; investing in technology, which can be a great tool to attract younger workers and enable more flexible work arrangements; and developing specialty practices or niche service areas to protect firm value.
I haven’t read the AICPA book yet myself but UK firms on the acquisition trail could put themselves at a serious advantage by getting hold of a copy. It probably applies to both accountants and lawyers.
If you’re an accountant, you may not get to be famous, but you certainly could become rich. Or perhaps earn more. Financial services professionals at the top of the career ladder are seeing salaries rise in specialist areas such as risk and compliance, as companies become concerned about sourcing and retaining critical skills in the face of increased regulatory requirements, according to research by recruitment consultancy Robert Half.
In an article by Pat Sweet on accountancyLive (here), the 2014 Robert Half Financial Services Salary Guide shows that 94% of executives say that the management of regulatory reform is a challenge for their businesses – 14% more than last year. Getting on for two thirds (61%) expect the financial workload resulting from regulatory change to increase, resulting in additional recruitment for permanent and interim regulatory professionals.
A quarter (24%) of financial services executives say the finance function is taking the lead on managing regulatory change, with the result that salaries in this specialty are rising in the face of shortages. The highest salary increase recorded in the survey is for head of operational risk at 8.9%, while one in four (23%) executives plan to hire interim staff to manage compliance initiatives.
A separate survey, the REED 2014 Salary and Market Insight report confirms that the market for both part-qualified and senior finance professionals is now ‘back at pre-recession levels – both in terms of job opportunities and remuneration. REED’s research confirms that many organisations now have to counter-offer top-performing staff to prevent a loss of talent, as well as devising more creative packages, including flexible working, to attract new staff. Its research shows that 43% of managers view losing staff with key skills as a problem.
According to REED, more than half (53%) of managers within finance report skills gaps in their organisation, compared to an average of 37% across all sectors, and 70% of these also see these skills gaps as having a negative impact on their bottom line, up from 66% the previous year.
However, the REED survey also shows that job satisfaction among finance staff is very high, with 84% of part-qualified professionals and 74% of fully qualified professionals feeling ‘satisfied’ or ‘very satisfied’ in their current role, compared with an average of 70% for the UK workforce as a whole.
Phil Sheridan, managing director, Robert Half UK, concluded: ‘Financial services businesses are realising that demand for the most highly skilled talent is outweighing supply, particularly within niche specialisms. Firms looking to attract the market’s most sought-after professionals know that financial remuneration is only one factor affecting candidates’ decisions. As employees aim to balance work and life commitments, offering a comprehensive benefits package – often flexible and tailored to each employee’s preferences – is helping companies position themselves as great places to work.’
Strangely, in the US I see that confidence among accountants is not as strong as we might have thought. In an article titled Accountants Confidence Wobbles Slightly Going into 2014, in accountingTODAY, Daniel Hood says that the accounting profession’s expectations for economic growth wobbled slightly (at least in the US) but remained positive for the fourth month in a row, according to the January edition of accountingTODAY’s monthly Accountants Confidence Index.
Meanwhile, it seems that lawyers are having a good time. The number of partners at UK law firms rose significantly this year as the rate of ‘firing and retiring’ fell, according to a survey by an accountancy firm, reported on in the Law Society Gazette this week, here. Figures show an overall net increase of 2,795 partnership posts this year, reversing the net loss of 153 partner roles seen in 2011/12, a report by Wilkins Kennedy says. A key factor behind the rise in partner numbers was that 44% fewer partnership posts terminated than in the previous year.
In 2012-13, 3,077 partnership posts were closed, down from 5,487 the year before that. In total 38,740 partners were practising at UK law firms in 2012. Wilkins Kennedy suggests the findings show that the worst of the downturn may be over for many firms, although problems may still remain with smaller law firms.
Interestingly, associates (a rung or two down from equity partners) in law firms are starting to question whether partnership is really the be-all and end-all for their careers with some seeing a salary and bonus arrangement based on their own personal performance as being better than the much more volatile earnings of a equity partner.
I know you’ve heard some of this before but it’s important. If businesses, and their accountant and lawyers (and other advisers) don’t grasp this opportunity, they’ll be left behind. Businesses of all kinds are storing content and data and accessing software applications via the global network of computer servers known as the “cloud“. IT analysts Gartner recently predicted that the total value of cloud-based systems would reach $210bn a year by 2016.
Safety is a big issue for everyone. So, just how safe is it to post your financial data to a server that is owned, maintained and secured by someone else, somewhere else? This was asked in an article by Ezri Carlebach on Guardian Business Network, here.
Mr Carlebach says that most of us are happily conducting day-to-day banking over the internet and, as Daniel Rissen of chartered accountants businessorchard.com points out, “the security issues are the same as with locally hosted systems – unless your business doesn’t have an internet connection. Any system can be hacked and it’s always wise to take proper precautions.”
Some tips Mr Carlebach offers are:
- carry out due diligence on potential providers and assessing their openness about the issues.
- check standard terms and conditions and find out what, if any, service level agreements are on offer.
- Are there user forums for the product you’re considering – you’ll want to check reputations of cloud providers through testimonials and online ratings.
- Ask pertinent questions about how your data is separated from that of other businesses on the same servers.
- What would happen to your data if the cloud company went bust or is sold.
- Where is the physical location of the cloud provider because that may affect data protection requirements.
Once you’re satisfied with security, the benefits are apparent. The ability to manage your finances any time or the day or night, anywhere, from pretty much any web-enabled device offers greater control over your time and significant cost savings.
But don’t get too excited: paying a monthly subscription to a cloud-based system may not remove the need for your friendly and affordable accountant, whether on or off site, to help you get the most from the product. Daniel Rissen (see above) recommends specific cloud-based systems to clients and works with them throughout the year, including providing training. “We can log in at the same time as our clients to streamline accountancy services, working together on everything from bank reconciliation to VAT returns,” he says. “This simplifies the end-of-year process too, saving time and therefore money.”
Some providers, such as QuickBooks and NetSuite, will offer a free trial or demo, so you can try before you buy. Where you have accounting software, you can be sure that Sage are there. Indeed they are – with Sage One, Sage’s online accounts and payroll product.
According to Dr Gerhard Kristandl, senior lecturer in management accounting at the University of Greenwich Business School, “cloud technology is an enabling technology – it should not govern how you do your business, but it should support your business”.
Kristandl and his colleagues are researching the impact of cloud systems on the role of the management accountant. They recently conducted an online survey with Irish companies that found that managers who have access to anytime, anywhere financial information tended to circumvent the accountant in decision-making processes. Try to follow what they’re doing if you want to get into the world of accounting and financial data in the cloud. Iris, the popular UK software company is now a leading provider of cloud services to the UK accountancy & payroll sectors.
Click here for more info.
I found a piece today (on the Blog.Spectator) that is so interesting and pellucid that I want to share it with you. The Blog is here.
The author, Douglas Carswell provides a simple graph. It shows the four economic downturns Britain has been through (red lines) over the past forty years. Preceding each sustained fall in GDP (red line) since 1971 there has been a sharp increase in money and credit (blue line).
What is striking, says Mr Carswell, is that each downturn was preceded by the same thing: a surge in the growth of money (blue line). In other words, the bust followed an unsustainable credit-induced boom.
He says: The motives and justification behind monetary policy leading up to each boom/bust might have been different. In the early 1970s, monetary policy was shaped by Competition and Credit Control (CCC) reforms. In the late 1980s, those who decided monetary policy wanted to shadow the Deutsche Mark, then join the Exchange Rate Mechanism (ERM). After that unhappy experience, monetary policy was made in order to target inflation.
No matter what those in charge thought they were doing – CCC, ERM or inflation targeting – as the blue lines show, they nonetheless presided over an unsustainable growth in the money supply. Which was followed by a sharp downturn.
In a paper on monetary policy published in the House of Commons (15/1/2014), Mr Carswell will argue that we are in danger of repeating the same mistakes again. Yet another growth in money and credit – which will be followed by yet another falling red line on the graph.
Mr Carswell says that many of the warning signs of yet another credit-induced boom are already there; increasing reliance on consumer spending, surging house prices, falling savings ratio and a deteriorating current account balance.
He asks: What ought we to do about it?
His answer: First, we need a tighter monetary policy, with higher interest rates. But we also need some more far reaching change in the way we run the economy, too.
One of the reasons, Mr Carswell suggests in his paper, why successive administrations have failed to prevent these credit bubbles is not merely down to misjudgement. Part of the problem is that banks are able to conjure credit out of thin air.
Preventing endless boom/busts requires real banking reform. In his paper, he suggests how we might prevent runaway credit bubbles forming – but using the free market, rather than the flawed judgement of central bankers or regulators.
Although the Bank of England might not have met its inflation target for many months, it has delivered lower, and more stable, inflation. In the twenty years since inflation targeting began, inflation has average 2.1 per cent – compared to 12 per cent in the 1970s and 6 per cent in the 1980s.
But low and stable inflation on one side of the equation has seen bank busts and credit crunches on the other. As long as bank’s lending is simply a function of their appetite to lend, combined with the appetite of borrowers to borrow – and restrained only by regulators – this fundamental instability will remain. A banks ability to lend must also be a function of its deposits. Mr Carswell’s paper proposes a simply way of achieving this.
If we are to avoid boom/bust 5, we need to change the way we manage the money.
Mr Carswell ends saying that he hopes his paper and its suggestions help. He says that he suspects at some point in the future we might need new ideas on monetary reform.
He is probably right.