Firms struggle to stay afloat

After 18 months advising, protecting and mentoring clients, accountancy firms have forgotten to look after themselves.

Each month around 500 firms are identified as being in financial difficulty, according to the latest statistics – five times the April 2008 figure.

The statistics, collated by Begbies Traynor’s Red Flag unit, paint a disturbing picture, particularly if more of the firms’ debtors, their clients, enter into insolvency as is forecast when the economic recovery begins.

Those in difficulty are described as having “significant problems”, which amounts to being loss making, having negative balances on the balance sheet, filing accounts late or facing court action.

“A firm can go under very quickly,” said Ronnie Goldsmith, group MD of
M&A specialists Goldsmiths. “They’re up against their banking limits, the salary cheque bounces and then no work goes out the door and no money comes in.”

More than 70 firms have been declared insolvent in the past 18 months, while the latest figures for October reveal 11 firms classed as in severe financial difficulty – which means having a County Court judgment for more than £5,000 or receiving a winding up order.

Struggling clients and strong competition in the accounting marketplace will mean fewer firms. “We’ll see considerably fewer practices in the next 12 to 18 months,” said KATO Consultancy’s Phil Shohet. “Firms are running for cover and have to find a home.”

Nick Hood, Begbies Global Network executive chairman, said that firms which failed to grasp strong credit management would be the first to struggle. “If you haven’t got a culture of monthly or quarterly billing and of only doing work when you’re paid up, then you’re heading for trouble.”

Most recently Titcheners entered into administration after its acquisitive strategy failed, and its efforts to stave off the taxman while it agreed a sale of the business fell on deaf ears.

Further reading:

Lessons to be learned from Titcheners' collapse

It's painful – but the best will survive recession