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Do accountants naturally worry about debt – and should they?

There are good reasons for accountants to be risk-averse when it comes to borrowing – but they’re particularly well-suited to managing it.

Paul Surtees Apr 27, 2021

There are good reasons for accountants to be more risk-averse when it comes to debt: insolvency or bankruptcy can fundamentally damage their professional status and long-term reputation.

But they’re also unusually well suited to managing debt and balancing it with the growth of the practice.

In our new guide to funding, buying and selling accountancy practices there’s a revealing quote from Alastair Barlow, founder of a famously innovative accounting firm:

Putting debt funding into Flinder meant we could hire ahead and accelerate our growth and go from an idea to £1 million in three years. The only limiting factor in our business is people. They are the most important asset and take time to develop. If we had borrowed earlier, we would have scaled faster.

Reflecting on how you’d do things differently, if you had another shot at the same challenge is a great way to challenge your own thinking. 

Flinder has been a remarkable success – an enviable one, even – but Alastair’s observation about what might have been is something from which other firms can learn.

With the right financing, you could take on more staff, as Alastair suggests, or invest in staff development. You could upgrade your systems and facilities. Or you might choose to invest in marketing – often the first victim of restricted budgets.

So, with that in mind, what might cause accountants to hold back from using debt financing to grow their practices?

 

You can’t give yourself business advice

It’s strange that accountants spend so much time advising other people on how to run their businesses, but aren’t always able to apply that advice to themselves.

When a client comes to you for support, the solutions to their problems often seem obvious. You’ve got fresh eyes and you’re less wrapped up in the emotions of it all than someone who has perhaps had sleepless nights trying to make the right decision.

Also, let’s be honest, it’s often easier to encourage other people to take risks than it is to take them ourselves.

At the same time, we’ve observed that accountants are sometimes reluctant to get advice elsewhere, perhaps because they’ve got in mind that old saying ‘Doctor, heal thyself!’ It feels like a failure or a lapse of credibility to need outside support.

And, of course, when you’re busy and stretched, finding the time to strategise can be a challenge. Urgent client work comes first, meaning that important long-term planning gets put off, and off, and off… Exactly the kind of behaviour that is so frustrating when your clients do it.

Investing in consultancy or facilitation could pay off in the long-run and help you see a clear path ahead.

 

Accountants do bear more risk

One good reason for accountants to be wary of taking risks when it comes to debt financing is the high standard to which the profession holds them.

First, it is, as they say, ‘a bad look’ for an accountant to become insolvent or declare bankruptcy. It could cost clients and put off prospects in future, even if you get steady and back on track.

Beyond PR, there are also concrete risks around chartered status and employment.

In its advice for accountants facing financial difficulty, the ICAEW points out that entering into a debt relief order (DRO) or individual voluntary arrangement (IVA) could lead to disciplinary action. And bankruptcy means you immediately lose your membership of the Institute. Similar applies with the ACCA, AAT and other accountancy bodies.

So, yes, there are real risks but if your practice is competently managed there’s no reason to be particularly wary of debt financing compared to, say, losing a key client, or a key member of staff.

 

Accountants also manage debt brilliantly

For all of the above, who could possibly be better at managing debt than an accountant, who regualry asks whether their clients are in a position to take on more debt

Once they’ve decided to bite the bullet and take a loan, overdraft or some other debt facility to grow the practice, that caution tends to translate into remarkable diligence. It’s a positive instinct.

They’ll also negotiate better terms than most civilians and will be better at identifying the marginal gains to be had by choosing one financing option over another.

Then there’s the professional instinct to record, report and track progress. Accountants will always know the status of their debt and look well ahead to anticipate and mitigate potential issues.

 

That’s why lenders like accountants

Although increasingly lending decisions are automated, where there are humans involved, banks and other lenders tend to look favourably on accountants.

That’s not only because accountants are careful and conscientious, but because it remains a profitable sector.

Even 2020, with all the challenges it threw accountants’ way, didn’t cause major disruption. In fact, accountants were busier, with many picking up new clients and forging deeper advisory relationships with those already on the books.

You only have to look at recruitment for accountants and bookkeepers to see how things are already picking up in 2021.

The more profitable your accountancy firm the better, of course. Larger firms with income from fees of more than £1m per year will likely receive lower rates from debt providers, who will regard them as a safe bet.

 

Don’t leave the handbrake on

If your firm is profitable and feels as if it wants to grow, it would be a shame to let an excess of caution cause drag.

If in doubt, get external advice – someone with an objective view who can give you the confidence to take the next step.

But don’t do any of this for the sake of it. Have a plan in place for the growth of your firm and make sure that any debt you acquire serves your goals.

If you make the right use of the extra working capital borrowing can provide, there’s no reason you shouldn’t accelerate growth, pull ahead of the competition and make back the cost of servicing your debt many times over.

 

Learn more about how to fund and grow your accountancy firm with our exclusive in-depth guide to Funding, buying and selling an accouting practice. .

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