Recent research shows that 82% of business owners want more support from their accountant to help them beat the recession. All good accountants understand this and have already geared themselves up to be able to deliver it.
Recessions are a natural part of the economic cycle. For the government to say there will never be another boom and bust is just naive. A balanced, pragmatic approach is what is required in these times and it is the accountancy profession that can show its true value by providing strong, solid and accurate advice to clients. Accountants are ideal candidates to act as trusted advisors and mentors and whether they are internal or external to the organisation they’re working with, they should be able to take an objective view of the business and the issues it faces, as well as being equipped to help it prepare for expansion once the eventual recovery starts to take place.
By providing a clear understanding of its current performance, the accountant can enable a business to focus on the fundamentals, and in a recession this is cash flow. The adage ‘cash is king’ has never been more accurate. This is why the accountant needs to challenge the business to put cash ahead of profit. Whilst certain areas of an organisation are profitable these may impact on the cash flow. As we’re all well aware, if cash flow is restricted then the company will suffer, even when it remains profitable on paper.
Strong cash flow is also vital for another reason. During a recession when liquidity is tight and banks refuse to lend, an otherwise healthy business may need cash for investment purposes such as acquisitions. If buying opportunities arise, the business needs to be in a position to take action. They can only do this if they are cash rich. The accountant is therefore well placed to provide guidance on how to leverage cash within the company.
Credit and cost control
Credit control can often be labour intensive but a good accountant will have the skills and processes in place to ensure cash is collected as quickly as possible. Separating invoicing and customer service from the credit control process, even if the accountant works in the company, helps to avoid customers requesting an extension of payment terms with the promise of further business.
This process also enables businesses to monitor their customers’ financial health and highlight any issues as soon as possible. As keen advocates of thorough credit checking, accountants will encourage businesses to put the right procedures in place to prevent making a risky sale that is ultimately unprofitable.
Another vital role accountants can play is helping businesses to focus on cost control. Of course, this is a good principal to have in place in all economic climates. By reviewing the business in an open and honest fashion, the accountant can help not only highlight the obvious cost cutting exercises, but also look to other creative solutions which may have a longer term cost benefit. This could mean addressing out-of-date processes through the implementation of new technologies, the end result bringing marked benefits to the customer from supplying accurate and timely communications on when an order will be filled to receiving goods faster. Responsiveness to customer demand brings competitive advantage, which is even more vital in the current climate.
Future planning and risk management
Once the accountant has helped to review the business and addressed ways to bring it back on track where necessary, there is the small issue of future planning. Medium and long-term forecasting is key to helping businesses deal with potential issues that could arise. The ability to forecast using ‘what if’ analysis will provide best/worst case scenarios, acting as a gauge to their impact on the financials. This is all part of risk management and planning, which comes from surveying the likely issues that could impact the organisation in future. These could range from new technology that the business needs to embrace through to changing regulations and acquisitions. Together, the accountant and client can address external environmental factors as well as internal issues, ensuring that any future plans are thoroughly thought out.
The value of an accountant to any business is undeniable and clearly goes far beyond number crunching. Whilst they play an essential part in helping businesses steer through a recession, their role is just as important in the boom times. It is their balanced and pragmatic approach to business that can act as a steadying force, enabling businesses to make the most of any economic climate.