To my mind accountants should play a vital role to the entrepreneur; but unfortunately they seldom do.
If entrepreneurship is the future of progressive industry, which I believe it is, then a shift needs to occur in the relationship between the entrepreneur and his accountant because this is one of the most important and enduring alliances he will forge.
There has been much debate amongst entrepreneurs as to the role of an accountant. Most view their services as absolutely essential, some view them as a necessary evil and others feel they are completely overrated and operate as leeches, feeding off the business for their own good. This opinion is possibly being supported by the fact that just in New Zealand, over 75% of accounting firms have gone backwards over the past 12 months in terms of revenue per partner,revenue per full time employee, profit per partner and profitability as a firm. Yet as technology advances, their systems are becoming more efficient, which should automatically raise their profitability.
There are two matters at hand here. The first is that accountants should be lifting their game in tough times if they want to be offering credible, value-added services to clients to do better, and their credibility is strongly linked with how well their own company is doing. The second is that they would do better, in the long term, to function as a “fostering” alliance instead of a draining one. A struggling economy should be a signal for accountants to do better, not worse.
The simple reality is that no business is required legally to employ the services of a qualified accountant (audits aside) but they are required to submit their financial accounts to their Inland Revenue office in a certain format. We have followed one primary rule in our businesses and that is “never come to the attention of the inland revenue services”! For this reason the services of our accountants have always been invaluable in ensuring that we follow requirements at all times; but any accountant can do that.
What makes an accountant valuable to an entrepreneur? In short, one who listens. Lets consider the options for a moment.
In my experience accountants fit primarily into three categories:
1) The compliance category: Essentially accountants are agents for the Inland Revenue department of their particular home countries and they function to ensure that the entrepreneurs formal financial statements are presented in a compliant format, with the objective being that his taxes are paid. This type of accountant can work with their clients for years without ever meeting with them face to face and they operate solely for the purpose of ticking boxes when compiling and submitting formal financial statements. For all species of the EnQ entrepreneur, the compliance accountant represents just another overhead.
2) The “business coach” accountant: Many accountants offer some form of business coaching and referral networks. This is offered by signing their clients up for a business-coaching course usually in the evenings, at a cost, and offering “networking” as an added advantage with other course attendees. This may appear to be a valuable service, but in my experience there are two problems with the nature of this offering:
I) The coaching side is often not linked to the entrepreneur’s own bottom line nor aligned to their specific needs. Relevance is therefore questionable, and the service becomes more of an additional source of revenue for the accounting firm than a source of value for the entrepreneur.
II) Accountants tendering as business coaches are often using hindsight as perfect vision. This vantage point might have provided valuable input in previous times, when outside influencing factors remained stable from year to year, but not in today’s world.
3.) The “pro-active profit accountant”: This category of accountants understand that it is in their best interests that their client’s businesses succeed. They work with the entrepreneur during the early vision and planning phases to guide them with additional and valuable insights provided by their accounting expertise. Critical and influencing factors such as provisional taxes, bottom line indicators and profitability versus cash flow planning (yes, I did say versus, nothing like profit to annihilate your cash flow) are explained, planned for and monitored from the first day of trading. The pro-active profit accountant functions for an entrepreneur much like a guide dog functions for a blind person. They provide systems to guide their client’s path through the real world of business. They don’t decide where their client goes but they do provide the critical information their client needs at the right time to continue his journey and adjust his steps where necessary.
The key difference between a compliance accountant, a business coach accountant and a pro-active profit accountant is their own style of thinking.
Whilst the compliance accountant fits the business venture activities into predetermined boxes, and the business coach accountant sells additional pre-packaged boxes, the pro-active profit accountant fits the boxes around the business venture in the appropriate manner at the appropriate time. They are mindful of the affordability and necessity of their services and they are careful to lay a supportive foundation for the entrepreneur where nasty surprises are kept to a minimum during the financial year.
PS: I would also like to express my gratitude to Brydon Davidson from Infinite Possibilities in Hamilton, New Zealand, for his insightful thoughts and assistance with the research for this newsletter, as well as to Thys van Schoor and Johann Bekker from FSG Accounting in Cape Town, for being the perfect pro-active profit accountant “role models” during my own entrepreneurial journey