Many of us had hoped that with the end of 2020 would come the end of COVID19. The reality for many is that 2021 is instead shaping up to be another difficult year as we likely face businesses being interrupted with “start-stop-start” trading and people being fearful of interstate travel due to concerns about unexpected border closures. It seems 2021 will continue to be a challenging time for us all.

In light of these business “as unusual” circumstances we have developed these tips which we hope may be of use to you.

Tip # 1

2021 Road-map – Client List Review

Set aside some time to review your firm’s client list and begin to classify them. For instance:

Green – last year’s performance was satisfactory – no known issues but a valued client who would appreciate a ‘welcome to 2021’ call to enquire if there is anything that you can do to help them get this year off to a successful start:

• Revisit 2020 performance
• Goal setting – both in terms of personal (eg work / life balance) and business (eg profitability)
• Budget / cash flow preparation
• Specialist advice / tax planning

Amber – last year’s performance was poor but the business has the balance sheet to sustain it – likely to have some issues which may either self-repair or worsen depending upon Q3FY2021 performance – cessation of JobKeeper not expected to adversely impact the business – liaise with the client to develop a plan that involves monitoring trading more frequently to identify unsatisfactory trends on a timely basis and allow remedial actions to be taken quickly as and when required

Red – last year’s performance was loss making and is likely to be in trouble – immediate review of most recent financials required to determine how much trouble the client is in and potential timeframe to act – cessation of JobKeeper likely to cause further hardship. Specialist advice should be obtained for these clients

Non Viable – Business is insolvent and may have only survived 2020 due to the receipt of JobKeeper payments and/or Government incentives. Business is unable to restart or the directors are unwilling to reopen for trade. Urgent insolvency advice required.

Tip # 2

New challenges for clients brings new opportunities for accountants but beware of working for free.

It is likely that many clients will continue to require additional services from you whether it is to deal with interruptions to their operations and/or Government initiatives to stimulate activity or planning for the future. Accountants, as the main advisors to business, will continue to be asked to provide additional services and guidance.

While these requests can provide a boost to practice income and provide new income streams over and above traditional tax and compliance work, accountants need to be particularly mindful of the cost of supporting clients through these difficult times. Not only is this a stressful period for clients, but those stresses can be passed on to you and your team. Be aware of this and seek help if needed (link to our blog on mental health).

Vigilance will be also be needed to ensure that you:

• have the appropriate expertise or know where to get the specialist skills required to service clients’ needs; and
• are being paid for the additional work you are being asked to do by your client.

Clients in financial difficulties can become quite demanding. It is important for your own financial wellbeing that billings and payments are closely monitored.

Tip # 3

Watch for the signs of business failure

Businesses do not fail overnight. For considerable periods before their ultimate demise, businesses in difficulties display a series of symptoms which, if ignored, will be terminal. Typical symptoms of a business in trouble are:

• Making a loss or sustained pattern of loss over a period of time
• Falling behind in reporting obligations to the ATO
• Non payment of taxes/superannuation
• Falling sales – excessive stock holdings/obsolete stock – query value of stock – is it realisable/saleable?
• Increasing bad debts
• Increasing amounts owing to creditors
• Inability to pay creditors within normal trading terms
• Breaching banking LVR’s and loan T & C’s
• Necessity to inject more and more funds to keep the business “afloat”
• High staff turnover as key personnel leave to secure stable employment
• Inability to obtain credit from mainstream financiers leading to relationships with non traditional financiers charging exorbitant rates
• Over reliance on intangibles and revaluations to keep the balance sheet “healthy”

These early warning signs are by no means exhaustive, however, they should be considered when you are carrying out your critical review of your client’s business. They should also be kept in mind by your clients when they are dealing with external parties, such as their own customers and even suppliers, to identify risk areas to their own businesses. In this regard we expect that most of your clients will have customers that will be unable to pay their debts. As a result, some businesses will fail simply because a major customer or major supplier has failed on them.

An early telephone call to Brooke Bird can help you identify plausible solutions to difficult situations. These solutions are likely to encompass both formal and informal alternatives. While business rescue is always sought after, for some COVID19 may be too big an impact and with the imminent ending of JobKeeper the company’s useful life may be at an end. However, even in these situations a recovery plan is necessary – which may simply be about providing new beginnings.