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Make your accountancy practice attractive to lenders

When it comes to making the case to lenders and achieving the best rates, there are things accountants can do to improve their chances.

Kirsty McGregor May 21, 2021

As well as facilitating financing for their clients, accountancy practices might themselves need to borrow – to provide working capital, fund acquisitions or support growth, among other reasons.

Traditionally, accountants have been looked upon favourably by lenders but increasingly algorithms drive decisions, not the advantageous prejudices of bank managers.

With that in mind, what can you do to ensure a “computer says yes” outcome when your practice approaches lenders?

 

Easier said than done: be profitable

It’s obvious, of course, but evidence of long-term profitability will immediately get you over the biggest hurdle on the way to accessing borrowing.

That means proof that your accountancy firm has been profitable in the past and is forecast to be profitable in future.

When it comes to accessing working capital during a cashflow crunch, there’s no room for storytelling. Rather, it’s about providing:

  • accurate, up-to-date accounts

  • and bank statements.

As accountants, you’re used to helping your clients track against KPIs, produce detailed management accounts and undertake regular forecasting. This is really about taking your own medicine.

 

Target high-value clients

This will be more important in the context of acquisition finance – again, when it comes to working capital, the decision making is more mechanical.

Why are firms with high-value clients seen as desirable by lenders? Because it’s a proxy measure of your credibility, your ability to generate lucrative business and of strong management.

Accountants and industry gurus have been talking about the pivot from compliance to advisory work for years now, driven in part by the existential threat posed by cloud accounting software. Increasing the value of your clients makes that an urgent need.

Compliance work can increasingly be automated, outsourced and delivered through ultra-competitive fixed-fee pricing models. Advisory work, on the other hand, requires expertise, experience and judgement.

Using Capitalise to launch your own capital advisory service would be one way to attract new clients and increase revenue from those already on your books.

 

Tactical diversification

With stability and long-term profitability in mind, much as with stock market investments, balancing the risk profile of your client base is sensible.

In recent years, accounting firms which had made good money working with contractors have had the rug pulled out from under them by changes to IR35.

Equally, those which specialised in retail, hospitality and leisure have found 2020/21 both hectic and worrying – how many of their clients will survive in the long term?

To avoid placing too much weight on a single service or client group, you might consider targeting:

  • two established sectors, such as construction and healthcare

  • and one growing sector, such as eCommerce.

 

Invest in your brand

Finally, there’s something we know many accountants resist, because it’s intangible and can feel ‘fluffy’ – marketing and branding.

It’s brutally simple, really: your firm is collateral and a strong brand makes it more likely the lender will be able to quickly realise the value of your firm if it comes to that.

More positively, a strong, professional image speaks, again, to the credibility of management and will also make your firm more competitive in a crowded market.

 

What are the options for growth finance?

Assuming you’ve ticked all of the above boxes and can present a strong case to lenders, accountants don’t have unlimited choice when it comes to lending products.

Invoice finance, for example, while often an option for businesses, won’t typically generate much capital for an accountancy practice who often bill monthly.

That’s perhaps why so many accountants rely solely on bank overdrafts to provide additional working capital.

One product that’s increasingly popular with professional services firms is the cash flow facility. It provides the option to spread large annual payments, such as professional subs or indemnity insurance, over an extended period. 

For more practical, in-depth advice on growing your practice read our exclusive guide to funding and borrowing.

 

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