Not just a bean counter....

Wed 30 September 2015

Gareth explores why it is important that business owners form strong and in depth relationships with their accountants.

For many people, starting or running a business can be a very rewarding experience. I count myself among them having left a large international accountancy practice to work at and eventually partly owning Collenette Jones, a local accountancy practice. Running a business will also present you with a number of challenges which can come in all shapes and sizes. Fortunately, the experience of running our own company means we understand and have experience of many issues that other business owners face.

You may just be starting out in the world of business and need to raise finance, or be looking for advice on how to expand your business as you grow. Having worked hard you will want to make sure that your business’ finances are in safe hands.

For many this means engaging the services of an accountant – but did you know that legally anyone can call themselves an ‘accountant’ without any training or experience? If you are going to rely on a professional accountant’s advice, as you develop your business there are many reasons that you would want the comfort of knowing that they are professionally qualified - a Chartered Accountant or Chartered Certified Accountant (“CA”).

In order to become a CA I had to complete a three years structured training with an approved training firm and pass rigorous examinations covering financial management, financial reporting, auditing, business analysis and strategy, and taxation. This training and experience helped me to develop an all round business awareness and professional judgement as well as the technical knowledge and communication skills you would expect of a qualified accountant.

Learning and development does not stop there once a CA is qualified. We must comply with strict requirements of continuing professional development to ensure that our knowledge and skills are kept up to date. We are also bound by high standards of ethical and professional conduct. Given the complexities of the modern financial world CAs often go on to specialise in distinct areas such as accountancy, audit, tax or corporate finance.

It may sound counter intuitive but working in a general practice also requires a specialised suite of skills. Amongst other things, a good general practitioner can prepare your business accounts and tax computations, carry out an audit if you need one, prepare a valuation of your business and advise on the different methods of obtaining finance. But it is more than being a jack of all trades and master of none. A general practitioner needs an awareness and knowledge of all the issues that one’s clients may face, and then need to be able to join those issues together in order to find workable solutions. Granted, there may be issues where specialist advice is needed, but CAs in general practice should be able to identify these issues, even if they cannot supply all of the solutions.

 

More than JUST preparing accounts

Prospective clients ask me with reasonable regularity to provide a quote or estimate for the preparation of their business’ year-end financial statements. “Don’t worry, I do the bookkeeping” they say. “I’m relatively accurate” they say. “You’ll be able to rely on my figures” they say.

CAs take pride in the financial statements that they have prepared and go out of the door with their firm’s name on them. Preparing a quality set of year-end financial statements (or indeed periodic management accounts) requires more work than relying on a client’s figures. This additional work corrects errors that naturally creep in to the bookkeeping and often includes adjustments that non-accountants may not be aware of and need to be made in order to comply with accounting standards (particularly with respect to company financial statements). It is essential that these adjustments are made as, otherwise, they could give a misleading impression of the performance of your business and will not be acceptable to the Income Tax Office for tax purposes. Your bankers will have a very close look at your accounts when you apply for a loan and it is essential they give the right impression.

This ‘extra’ work is work that we perform as routine and we are therefore more efficient than non-accountants. We are experts at seeing through the bookkeeping and numbers to the heart of accounts and any irregularities that may be contained therein. An error that may take a less experienced accounts preparer a significant amount of time to rectify, we would probably solve in a lot less time as it is work that we do day in, day out.

We think about more than just a client’s financial statements as we prepare them. There are various items in financial statements that are likely to be questioned by the Guernsey Income Tax Office and a good CA will be aware of these. They can use their experience to pre-empt those questions and ensure they have the information on hand to answer them. Dealing with potential tax issues up-front can save a lot of time, worry and, more importantly, cost for your business in the long run.

A CAs work should not stop there though. A CA can (and should) do much more than just prepare accounts and can benefit you and your business no matter what size or stage it is at.

 

‘Whole of life’ service

There are many other areas where the wide-ranging training that all qualified accountants receive, and the business experience that a good general practitioner will have obtained, can prove invaluable over the life-time of a business.

In the early days, a new business owner may need assistance with financial models and forecasts in order to secure bank loans or to secure key contracts. It may also be necessary to consider the pros and cons of leasing key assets versus buying them outright.

Sometimes a business is not grown from a seed, but is purchased from the previous owner. There are often complexities when buying an established business and prospective purchasers need to know exactly what they are walking into financially (as well as legally). This type of work is known as Financial Due Diligence. This is really interesting work as one has to get up to speed with the target business quickly in order to identify and report the key financial risks for the purchaser, but requires you to have a far deeper understanding of accounting and business systems and processes than just an ability to prepare the numbers.

As a client’s business grows they may require advice on ways of mitigating their tax bill or the impact of their earnings on their social security payments. The question of whether they need to trade through a limited company will probably come up. We, like many CAs, are able to explain the difference between different types of trading structure, the impact on how tax is paid and the regulations and laws that cover a company’s operations.

A really enjoyable part of our job is when clients ask us to help with succession planning for their business. Having worked with and gotten to know our clients well over the years, it provides a great deal of satisfaction to help them realise the fruits of their hard work whilst at the same time giving the business they founded the best chance of success under new ownership.

Depending on the type of succession plan put in place, a prospective purchaser may require the business or company to be audited (this is where an auditor positively states whether or not the financial statements show a ‘true and fair’ view). Audit is becoming quite a specialised skill in Guernsey. Fewer and fewer local Guernsey trading companies are being audited - this is mainly due to the exemptions available under the Companies (Guernsey) Law, 2008. However, ideally your accountant should be able to provide this service when required.

 

The right advice

Given the financial climate since 2008 it is understandable that many business owners are watching their costs. They may see the cost of preparing a quality set of financial statements as an un-necessary expense. As with many things this attitude may be fine when things are going well.

However, it may prove to be a false economy in the long run as accounting errors or irregularities invariably lead to tax complications or problems with lenders. The warm fuzzy feeling of cheap fees will evaporate long before the pain of having got through a tax investigation or having had to renegotiate a business’ lending.

It may seem a long way away, but it is almost inevitable that at some stage you will require some of the other services a professional accountant offers – financing, valuation and succession planning will affect almost all successful businesses. Would you want the hassle of changing your accountant and getting a new one to learn about your business a couple of years in, when you realise (the hard way?) that you need more than just a set of financial statements?

As every successful business owner knows, it is important to get the right advice at the outset. As a business owner myself, my advice is to make sure that you have a good relationship with your accountant – and most importantly, make sure your accountant is professionally qualified!


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