Will GDPR pyjamas be the next big trend?
Oh yes folks, thine eyes do not deceive you. I know you've all been dying for another one so here it is; a brand spanking new GDPR blog! *the crowds go wild*. Well… if you’re like me then you cannot get enough of GDPR. For my birthday I was spoiled rotten. I got some lovely GDPR earrings, a GDPR cake and some GDPR pyjamas so I can always sleep tight in the knowledge that my payroll data is protected. But not only that, my pals over at BrightPay got me an extra special GDPR gift in the form of two new bureau features called ‘Client Payroll Entry’ and ‘Payroll Approval’.
So we all know how much of a nightmare it is inputting timesheet data from your clients into your payroll software. The back and forth, and the mistakes (good Lord, more mistakes than a playschool). Because you duplicate the data the margin for error is in turn doubled. Not only this but the payroll data is sent to the bureau in the form of emails, word documents, spreadsheets, carrier pigeon. We’ve talked before about emails and GDPR but in case you missed it, it’s a big fat no. Just don’t.
“*When a payslip comes via email”
Emails are not the most secure channel, especially for the cornucopia of sensitive employee data being transmitted. If you do use email to send clients payslips, it is strongly advisable to ensure payslips are encrypted and deleted from our servers once sent. And of course, you would need to ensure passwords are used on all payslips.
So what this new Payroll Entry Feature does is put the onus on the client to input their own payroll data into the secure employer dashboard, thus reducing the back and forth and making sure all that juicy data is sent through a secure portal.
Once the payroll data has been submitted to the bureau they do their hocus pocus and hey presto - you have yourself a payroll summary statement. Before, this would have had to be approved via email and then sent to the client who would send back what needed to be rectified and then back and forth back and forth again. All the while this big bowl of GDPR is spilling data all down the sides and all over the good carpet. It’s a mess! But with the second new feature from BrightPay Connect is the Payroll Approval feature - the bureau sends the client a preview of payroll summary statement to the secure BrightPay Connect portal, the client reviews it, approves it and then *ping* it goes back to the bureau to process it and everyone lives happily ever after.
With these new BrightPay Connect features the exchange of information is not just super secure, it has a chastity belt; no one is getting in! The online portal is also protected by username and password with role and permission based access for each user. This is the stuff that GDPR dreams are made of as it places the responsibility of security into the hands of you, the people, who GDPR was made for.
If you want to get technical *puts on glasses and lab coat* - “The BrightPay Connect service is a web based application hosted on the Microsoft Azure platform. All data transmitted to and from the cloud service is secured using SSL over HTTPS. This includes data sent via web browsers and data sent from payroll applications”. - BrightPay Connect
Understand all that? Nope, me neither! But when I put it into Google Translate it said “BRIGHTPAY CONNECT GOOD, VERY SAFE, GDPR YES”. And that’s all you need to know.
Check it all out here... HERE
Why it’s time for me to bail out of the MTD pilot
Darren Powell explains why he is leaving the HMRC's MTD for income tax scheme despite having invested so much time in it...
It looks like my involvement on the MTD for income tax pilot may be over. How did this happen? After all, this was not the outcome I had expected. Put simply, I believe it comes down to the fact that there are very few software providers who have market ready, MTD for income tax compliant software.
I joined the pilot in April 2017 as our tax software provider was the first to bring a product to market. Three months ago we decided to change our tax software, having postponed this decision last year, so we could remain on the pilot. You may ask why remaining on the pilot was so important, but having invested a lot of time in it, and HMRC investing their time too, it was the right thing to do.
We are still licensed to use our old software until February 2019 so have two systems running at the same time. I had hoped that by the time our old software licence expired our new software would be MTD for income tax ready. After all, this would be almost two years since we signed up! The intention would be that we would seamlessly switch from one to the other. This will not be the case. I do, however, know that our new software provider has a product ready, but it will not bring it to market until HMRC better define their requirements.
Submission issues
So how far did we get? Out of the four clients on the pilot we were able to make a fourth quarter submission for 5 April 2018 for just one of them. For one of the others, we did not attempt a fourth quarter submission as we had already submitted the tax return. The other two clients are not working as intended and attempts to resolve this by HMRC are still not successful. HMRC have therefore advised that we submit their tax returns in the normal way as they do not wish to delay us any further.
This seems fair. However, it is a shame that we were unable to file a fifth or final submission for our one client who ‘appears’ to be working OK and has straightforward tax affairs. He only has self-employed income and no other income to report. I wonder if this is because HMRC’s system cannot yet cope with this final submission?
Going forward, HMRC only want individuals on the pilot if all their income is supported, removing the need to complete a tax return. Having changed our tax software we cannot guarantee that we will be able to do this. The last quarter that we could possibly achieve will be the third quarter ending 5 January 2019, before the expiry of our old licence.
Unless our new software has a product ready by April 2019 it is pointless to progress, as we will not be able to complete the year.
I would be happy to try anyway, to see if this can be achieved, but with the complexity of the pilot as it is I guess HMRC don’t want any dead wood. I have offered to sign up new clients to the pilot as these would have a ‘clean sheet’, and perhaps the previous issues I have experienced throughout the pilot would not be repeated. Again, HMRC would prefer I did not do this if I cannot submit for the entire tax year.
It is slightly disappointing that I was unable to complete the whole process through the MTD platform, but that’s testing for you! The MTD for income tax pilot was extended from controlled private testing to go live public beta testing in March 2018 so by now I expect there are many more practices testing the system.
Enjoyable experience
I will now wait until our new software is MTD for income tax compliant and then hopefully rejoin the pilot. If I am being sentimental I hope this to be soon, but if I am being realistic perhaps it will be more like late 2019. Strange that I should find myself so attached to the pilot, but then it has been enjoyable testing the system and making new connections. There are only four approved software providers listed on HMRC’s website, so let’s hope HMRC can get this working smoothly so more providers join the list. A lot of the major brands are not listed, so what are they waiting for? A U-turn? I don’t think so.
- Darren Powell ICPA is a Partner at Fraser & Co, based in Shepton Mallet
Is fee buying a viable option for all accountants?
Day in, day out, APMA takes calls from newly qualified practitioners looking to set up in practice, from practitioners looking to grow existing practices, from unhappy or ambitious employees looking to step away from their employers and hoping to start out on their own. But how realistic is the prospect of fees acquisition? There can’t be enough fees to go around for everyone, surely? The answer is no. But that doesn’t mean that you shouldn’t try – if you don’t try, how can you ever succeed?
The passive approach
If you wish to grow through acquisition, the first step is to register your interest with all the brokers and agents you can find. Also consider posting your requirement on any relevant forums. After that remain vigilant and be prepared to consider everything!
Opportunities to buy do exist. Sometimes they will be suitable and sometimes they won’t, but the process of considering each on its merit will ensure you are best positioned to make the acquisition when the time comes – if it’s right for you and if you’re right for it.
If you are serious, exploring the buying process will help you to develop a better understanding of what it is you want and how that might look in reality. A good broker will ensure that the process is not too time-consuming for you and that you are armed with the necessary knowledge, and also that you benefit from sufficient support throughout – they won’t just leave you to sink or swim.
The proactive approach
If you are really keen, why not consider retaining an M&A professional to assist you in your search? They will go to market on your behalf with a view to identifying potentially suitable acquisition opportunities. While this approach will cost you, it can help you to get your foot in the door, setting you ahead of the competition, and so is surely an expense worth considering. For some, the exercise may yield no fruit, but for many it can present a number of viable options and can be a game-changer.
Earlier this year we were retained by an individual working in a job that made him unhappy. He dreamed of buying a small block of fees so he could leave that job behind to service the acquired clients from home with the few he already had. With such a small requirement there was every chance we might not succeed, but we are here to serve. Through our efforts we established a number of practitioners were in fact ready to dispose of blocks of their smaller clients to allow them to focus on their more lucrative fees and on those clients with more complex requirements. Thus a suitable block was found quickly, a deal was agreed, the gentleman’s ambition was achieved and the vendor was satisfied and able to focus his efforts elsewhere – with more money in his pocket.
Lots of practitioners may be almost ready to sell but might not yet have found the courage or the time to pick up the phone to make that call. But if a letter on behalf of an ambitious purchaser were to land on their doorstep at just the right moment it could be the prompt needed to spur on action, and that could change everything – both for them and for you.
In the meantime, the feelers will already have been put out, so only 30 minutes each week needs to be devoted to checking back in with the marketplace.
- Lucinda Kitchin, Jeremy Kitchin Practice M&A (APMA). Email [email protected] or call 01623 883300. Or go to www.apma.co.uk
Hey accountant... are you a trusted adviser?
How much do your clients trust you... and is it enough for them to always take your advice? We hear the phrase ‘trusted adviser’ bandied around a lot but is it representative of client-accountant relationships?
Trust is a sliding scale.
For a start, just because a client asks you to do their tax return, it doesn’t necessarily mean that they trust you. It's simply that you are the most convenient solution for them.
They may trust you as an accountant to do your job and to look after the compliance work, but not necessarily trust your opinion, your advice or even your motives.
Clients will trust you up to a point. The challenge experienced by accountants is that this point is far too often set to low.
Clients will act on your advice up to a point but not far enough for you to achieve the ‘trusted adviser’ status that you strive to be. We want clients to trust us more so that they become more willing to accept our advice and recommendations, good for their business and for ours.
Trust builds over time if we consistently demonstrate that we can be trusted, but frustration builds if there are results we want to achieve in the meantime that take the client beyond their trust point.
Can we accelerate the process?
Trust is built on three things:
- You being true to yourself. Through this comes an honesty, belief and integrity that buys trust from the client.
- You having robust solutions. Your advice and solutions should be able to firmly withstand questioning. Through this comes confidence that buys trust from the client.
- You show empathy. Demonstrating that you understand the client and have their position at heart buys trust from the client.
We can, therefore, accelerate the process of building trust by consistently demonstrating these three traits. Our behaviour and environment need to reflect these. Our points of client contact need to promote these. Our conversations need to be planned to demonstrate these.
Our marketing too needs to be built with these values at its heart. Take a look at your website, your newsletters and your marketing tools. Do these reflect the trust-building assets?
Don’t leave trust to Father Time. Demonstrate to clients your ‘trusted adviser’ status.
Beyond banks, beyond borders
A survey reveals the need for greater education among UK businesses when it comes to finance.
The study, conducted with over 1,000 UK firms employing more than 10 staff, highlights some prevailing perceptions of UK businesses and underlines several key challenges faced by business leaders in today’s uncertain economic climate.
Beyond banks
While 70 per cent of businesses in the survey commissioned by Growth Street, claimed that they had never considered funding their business other than through their banks, fewer than half (45 per cent ) of respondents indicated that they would talk to their bank first if they were thinking of taking on new funding for their business.
Accountants and brokers were cited as playing an influential role as business advisors, but 26 per cent of respondents were unsure what their first port of call might be when looking for funding. This outlines a clear need for increased education and effective signposting of the appropriate alternatives.
Some responses indicated that alternative finance may be moving towards the mainstream. 54 per cent of survey participants stated that they now have some awareness of the funding options from sources other than their banks.
However, there might be more to do before the sector realises its potential: 45% of respondents claimed that they were ‘not at all confident’ in their knowledge of the alternative finance sources available to them.
Beyond borders
Exporting may well be a potential area of growth for businesses: 66% of our survey respondents didn’t export goods or services at all. (Of those engaged in exporting, only 1% did not sell to EU countries.)
Guidance for new exporters is an issue that may require further thought. In response to the question, ‘Do you agree that enough official guidance and information is made available to businesses who are looking to begin exporting?’, fewer than 20% of respondents strongly agreed. When asked, 'If your business were to require funds to fuel new exports, would you be confident of knowing what kinds of funding might be available?', fewer than 30 per cent of respondents said 'Yes’.
Understanding: the key to business growth
Greg Carter, Growth Street CEO, comments: “With strict lending criteria from the banks, it’s vital for businesses to understand the alternatives that might be available to them. Surveys of this kind deepen our understanding of the needs of growing businesses.
“With international trade having been thrust into the spotlight, I believe potential exporters need significantly more guidance when it comes to exploring new avenues for growth. This could be critical for Britain’s long-term economic prosperity with the process of leaving the EU still under way.”
Read more about the results of our survey in our report which you can download for free here.
In search of a work-life balance
After a well-earned break for most, Christmas and the biggest rush of the entire year seem to be a very distant blur! Yet some of us are still finding it tough to get back into routine, with that seemingly endless to-do list.
Christmas is a wonderful time as it pushes us to have some much-needed time off and recharge, which for some does not come often.
While I admire those with a good work ethic, I believe that balance is the key to happiness and good health.
So how do we get the right balance?
We must be able to adapt. If you think about your work/life balance as a pair of scales you want the weight to be equal - but for most it never is, Something has to give in order to coordinate balance.
Most balance relationships, kids, hobbies, while chasing a career, Some have no time for any of the above other than the career.
The biggest mistake most people make is over committing, and not using time wisely!
Getting itchy feet, making a change to please others, saying yes too often whether it’s starting a new project, studying, hobbies, meeting up with loved ones, we are always in demand but now is the time to review, most of us feel we can’t say no which is half the problem....
There is always an alternative solution… time to re-think our answers!
- I can’t stay late tonight instead ask can I please extend that deadline until Friday?
- I cannot start that new project yet (Can we meet about this next week instead?)
- I am not going to send one more email (Set an alarm, a reminder to switch off emails at 5:30)
- I’m not going to be able to attend that meeting can one of my team go instead?
- I can’t commit to plans that weekend
What is the bittersweet?
The 'bittersweet' is the hard work that provides results but only to a degree - money and achievement, for instance. B
But let’s take a look at Elon Musk, CEO of Tesla. He's a very wealthy, clever man. But working 17 hours a day with millions in the bank is ludicrous!
There is no balance here at all... it is just work, work, work and the result of this is his health has suffered.
Overwork has been proved to decrease productivity and can even shorten your life span!.
Next time you find yourself with that inner doubt and you are questioning whether you can say yes or no, don’t just commit and please others by saying yes. Think of a solution, an alternative - and give yourself the time you deserve.
After reading the above, are you questioning your work life balance? Or maybe you have already conquered this? Have you got any advice for others?
Please comment below!
Oh and here's an article about why working a 17 hours a day is bad for you. Right HERE
Accountants speak volumes
Lots of books come across my desk, but in all honesty they are for the most part rubbish, written by people with an overblown sense of their own importance and no track record in the business whatsoever. Despite this, they insist that their way is the right way and that if you follow their strictures then untold wealth and fortune will follow.
That said, a few books come my way from writers that I know to have been successful, and who don’t pontificate but simply try to impart knowledge that accountants in practice may find helpful. I’d like to mention a couple that I think are really worth taking the time to read.
First up is a book by Phil Sayers, called ‘It’s All About The Value’. Some of you might know Phil from his time at Clear Books, and most likely will have met him at Accountex or you may know him from his work on the Council of Basda. His book is subtitled ‘Improving Sales Effectiveness for Small Businesses’, so initially you may well think it’s of no use to accountants. But you’d be wrong. Accountants in practice need clients to survive – that’s a given. They don’t appear by magic after all, and this little book will help accountants no end. Most of us are not salesmen; we studied accountancy and most likely we have a natural dislike of hyperbole and salesmen simply because of our background. The only sales techniques we learned were what we picked up at our boss’s knee, as it were, and we had drummed into us from an early age that “sales is vanity, profit is sanity”. Referrals are how we get our work – we don’t have to have a sales pitch because our client has done that for us – and most of us frankly aren’t very good at it, as a quick glance at most websites will confirm.
If only salesmen read this book that will be a shame, because this book will help everyone who deals in services as well as products, as Phil points out. It covers so much, from working out who we are trying to sell our services to, to holding that initial meeting or making that first phone call through to negotiations and handling objections. It even covers CRM systems and hiring sales people. I especially liked the chapter on writing quotes and proposals, which gives a great and logical layout to follow. I learnt a lot from it, and I think all accountants will find something in it to help. ‘It’s All About The Value’ is available from Amazon, but I have a few copies available to distribute free so if you want one just get in touch.
The next book I came across was ‘The Numbers Business’ by Della Hudson, who is a lady I have a lot of time for. She grew her practice from scratch in Bristol in 2009, selling up in 2018, using cloud-based applications at the heart of the practice. She continues to work in accountancy as a speaker, writer and consultant, and many of you will have come across her on social media. This is another great book that I thoroughly enjoyed, most likely because at its core it’s an honest and true reflection of a real small practice with real small business clients that all small practices can relate to.
The term ‘manual’ is used often in the publicity for this book, which I think does not do it justice. For me a manual is something that should be followed to the letter, and while any accountant in practice could do that if they wanted I think more will benefit by firstly having a thorough read of the book from start to finish and then thinking about how each chapter relates to their own practice, and what if any ideas they can implement. I doubt very much there will be one reader who does not find something that they can use in their own practice – it’s that good and it’s that simple.
I especially liked the chapter on becoming a trusted adviser, because it is something that the world is shouting at us to become. As Della says, “not all accountants enjoy this type of work, nor do we have the necessary skills”. However, she does point out that recognising this does not mean that we pass up the opportunity, and she explains how this can happen.
The sub-title of the book is ‘How to grow a successful cloud-based practice’, and it covers everything that you will need to think about if you are to make a success of your practice. Yes, the focus is on cloud, but in her chapter ‘Choosing your software’ there is a good list of what is available – it’s not all cloud and it’s not all Xero, either.
This is a very good book that is also available to buy from Amazon, but again I have a few copies so it’s first come, first served if you want a free copy. Please get in touch via email – [email protected]
If you are in practice, or if you are thinking of starting out in practice, then both these books will help you get the very best of what you do.
Accountants embrace the future
Accounting automation is something that’s fascinated me ever since I qualified in 2011. I’ve seen many doomsday scenarios predicting an end to accounting as we know it. And to an outsider, accounting must be ripe for automation because it’s just a case of adding some stuff up, right?
When I left PwC, where I trained as an auditor, I moved into the tech start-up world. ProConfirm, my first business, was a platform to automate bank confirmations. We sold ProConfirm in 2014 and I had some time to reflect on the future of our profession and whether robots would be taking over soon.
I now run my second accounting technology company called Coconut. There is no doubt that technology will drive some massive changes in accounting over the coming years. And, overall, I think this will be a good thing for customers and accountants.
But through all of this what I’ve realised is that there’s no way accounting will be automated in the way that outsiders expect it to be.
The human touch
I’ve spoken to thousands of self-employed people and small business owners and accountants provide something that computers are a long way off from replicating: peace of mind.
Having a human to talk to, someone who understands how you’re feeling, has experience built over many years and professional judgement, gives customers ultimate reassurance. Experience lets you navigate complexities that machines just can’t conceive of, no matter how smart.
That’s why accountants are the go-to business adviser.
It’s just not adding up
When we were starting Coconut we asked ourselves: if it’s the advisory work that clients crave, how can we do more of it? What we found is that there’s lots of manual preparation and cleaning up work to do. And this is under attack from the outside because clients don’t see the value. It boils down to:
- Gathering customer data, cleansing and preparing it.
- Communicating with the client to understand context of the transactions.
- Making lots of different tools and systems talk to each other.
Automation starts with metadata
We looked for ways of solving this problem and decided to start with the data. We identified that transaction metadata holds the key to automation. Metadata is information that describes the transaction in more detail. As traditional banks don’t pass metadata on to the customer it’s hard to understand the tax context of a transaction automatically.
So the starting point for Coconut was to create a business current account, giving us transaction data from the source, including the rich metadata.
Changing customers’ experiences
We also realised that a lot of work is created by putting off the bookkeeping until it absolutely has to be done. We wanted to find a way of interacting with the customer when a transaction happens.
This is really hard to do with traditional banking data, but by building on a smart current account we see the data in real time, making it much easier.
The instant interaction changes bookkeeping from something retrospective into something instant because we can:
- Remind the customer to take a photo of the receipt when it’s in their hand.
- Use the metadata to make a judgement about what tax category the transaction relates to.
- Prompt the customer to check, giving them relevant guidance increasing the chances that it’s right.
- Make sure everything is ready to go, along with notes, for when any review or filing needs to be done.
To make this to happen we have built a proprietary process to understand the tax context of a transaction. We’re finessing this all the time to improve accuracy. And it means within a few seconds the bookkeeping for a transaction is done and stored in a neat system ready to go.
But if the bookkeeping is done, what next?
Our aim is to free accountants up to provide insights and advice to clients. With very little effort both parties can concentrate on the hard stuff, eliminating the mundane and repetitive. The objective is that accountants can do more advisory work or expand their client portfolio.
Working with the UK’s accountants
We’ve engaged closely with customers from the beginning and it’s meant we’ve created a product that they love. In the same way, partnering with the accounting community on our accountant tools is really important.
Elaine Clark, the founder of Cheapaccounting.co.uk, is one of our key advisors. She is supporting with development of tools for independent accountants and networks like hers. We’re also very excited to be working with Tony Margaritelli and the ICPA and will be making sure ICPA members get priority access to our products – see you all at Practice Evolution 2019 conferences where I’ll be sharing more!
What Coconut does
The Coconut product is a current account for sole traders that they can open in a few minutes from their phone, available on iOS and Android.
Coconut gives business owners guidance about the tax rules, categorises their income and expenses, and gives a forecast of their tax bill. It also has an invoicing tool, which will match off invoices automatically to the payments into the account.
Accountant Portal
Alongside our customer accounts, we’re building an Accountant Portal. The aim is to give accountants a window into the transactions your customers are making on their Coconut accounts. You’ll be able to see transactions, receipts and notes in a really accessible format. You’ll be able to download them easily. We also want accountants to be able to communicate with the client through the portal to make the bookkeeping process much more efficient.
Want to get involved?
Our aim is to develop the next generation of tools that really help accountants service their clients. If you’d like to get involved, have a chat or just want more information, please get in touch by going to getcoconut.com/icpa
Sam will be speaking at the ICPA’s 2019 Practice Evolution conferences in London (27 June) and Manchester (4 July). For details and to book a place go to https://practiceevolution.co.uk/
FRS 102: How to account for government grants
Government grants are dealt with in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland in Section 24 Government Grants.
Section 24 of FRS 102 deals with the accounting requirements for all government grants.
The term ‘government grants’ is defined in the Glossary to FRS 102 as: “Assistance by government in the form of a transfer of resources to an entity in return for past or future compliance with specified conditions relating to the operating activities of the entity.
Government refers to government, government agencies and similar bodies whether local, national or international.”
Recognition and measurement
A reporting entity cannot recognise a government grant until the recognition criteria has been met. In order to meet the recognition criteria there must be reasonable assurance that:
- the entity will comply with the conditions attaching to the grant; and
- the grants will be received.
Accrual and performance models
An entity receiving (or expecting to receive) a government grant that meets the recognition criteria laid down in paragraph 24.3A of FRS 102 is required to recognise the grant based on the accrual model or the performance model. This is an accounting policy choice and must be applied on a class-by-class basis. Note – micro-entities reporting under FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime can only account for grants using the accrual model.
Accrual model
The accrual model of grant recognition will be the most familiar to accountants. This model requires the grant to be classified as either a revenue-based grant or a capital-based grant.
Grants which relate to revenue shall be recognised in income on a systematic basis over the periods in which the entity recognises the related costs for which the grant is intended to compensate.
Example: Capital-based grant
Autumn Ltd (Autumn) has purchased a new item of machinery for £100,000 outright in cash, which has an estimated residual value of £nil at the end of its useful economic life. The machine is being depreciated in accordance with the company’s accounting policy for such equipment, being ten years’ on a straight-line basis with a full year’s depreciation charge in the year of acquisition, but none in the year of disposal.
Summer applied for a government grant towards the cost of this asset and the government have confirmed that they will meet 20% of the cost of the equipment in the form of a grant (i.e. a grant of £20,000). This has been received by the company two weeks’ after the purchase of the machine.
The entries in the books of the company in respect of the new machine and the grant are as follows:
Purchase of the machine
Dr Property, plant and equipment additions £100,000
Cr Cash at bank £100,000
Being purchase of new machine
Dr Depreciation expense (profit and loss) £10,000
Cr Accumulated depreciation (balance sheet) £10,000
Being depreciation of new machine in year 1
Government grant
Dr Cash at bank £20,000
Cr Deferred income £20,000
Being initial receipt of the government grant
Dr Deferred income £2,000
Cr Profit and loss account (other income) £2,000
Being 1/10th of the grant released to profit or loss
It should be noted that paragraph 24.5G of FRS 102 specifically prohibits the value of the capital-based grant from being deducted from the cost of the asset (i.e. Dr Bank, Cr PPE additions) and hence recognising the grant in profit and loss by way of reduced depreciation charges.
This is because such an accounting treatment is incompatible with company law as the statutory definitions of ‘purchase price’ and ‘production cost’ make no provisions for deductions from such amounts.
Performance model
The performance model works by allowing a company to recognise a grant immediately in profit or loss; however, there are certain criteria that have to be considered as follows:
- A grant which does not impose specified future performance-related conditions on the recipient can be recognised in income when the grant proceeds are received or receivable.
- A grant which imposes specified future performance-related conditions on the recipient is recognised in income only when the performance-related conditions are met.
- Grants which are received before the revenue recognition criteria are satisfied are recognised as a liability.
Example – Performance-related conditions met
Winter Ltd has set up a new branch in a deprived area of the country and has an accounting reference date of 31 March each year and chooses to apply the performance model of grant recognition. In order to entice businesses to set up operations, the government have introduced a scheme whereby they will provide a grant to the company once certain conditions have been met. The conditions are as follows:
- The company must be trading to full capacity by 31 December 2018.
- The company must have successfully employed at least 150 people on a full-time basis by 31 January 2018.
- The company must take on at least 25 people under the age of 25 on an apprenticeship scheme.
The company successfully achieved all the conditions imposed on them by the government and the grant was duly received on 26 March 2018.
The financial controller is unsure whether to recognise the whole grant in profit or loss or defer it in the balance sheet.
The company has complied with all its performance-related conditions imposed on it by the government where the grant is concerned. Provided none of the grant is, or may become, repayable in the future, the entire grant can be recognised in income for the year-ended 31 March 2018.
How to build the perfect accounting practice
In 2008 I embarked on a 10-year research project to study what makes the best accountancy practices so successful. That research will result in three books:
The UK’s Best Accountancy Practices (published 2011).
The World’s Most Inspiring Accountants (published 2016).
The World’s Best Accountancy Practices (to be published 2019, when the research is finally finished).
The firms we have studied come from every corner of the world, from sleepy backwaters to city centres. They range from start-ups to long-established practices that can trace their roots back to the 19th century. And they represent independent accountancy firms of all sizes, from sole practitioners to multi-partner firms (although we deliberately haven’t studied the Top 50 firms, as we wanted to discover what works for ‘normal’ accountants).
The 15 drivers of excellence
Diverse as the firms we studied were, what united them was that they were all shining examples of what is possible and how to make it happen. And what we discovered was that what makes them so much more successful than most practices are that they have:
- Better intent: They don’t make excuses or moan about what the world is doing to them. Instead, they take control of their own destiny. Their success is planned and not accidental. They decide what they want, make whatever changes are necessary to ensure that they get it, and persevere when the going gets tough.
- Better decision making: They make conscious, rational decisions, driven by their goals, and informed by facts rather than guesswork or pre-judgement. They do not run away from the need to invest time and money in creating success for them and their clients.
- Better measurement systems: They don’t just rely on traditional accounting measures. Instead, they work out what really matters – what drives their success – both financial and non-financial. They find ways of measuring all those success drivers, set targets, use the results to inform decision making and make people accountable for performance and results.
- Better action: They recognise that one of the timeless keys to success is to do what you said you were going to do, when you said you were going to do it. So they have systems to ensure that action plans are created, recorded, prioritised and implemented. They do not accept lip service, excuses or weasel words.
- Better measurement solutions for clients: They also recognise that profits are a consequence of doing the right things for the right people in the right way. So they start by making sure that their clients also get all the information they need about the numbers that really matter within their businesses, including their success drivers and benchmarking comparisons.
- Better improvement solutions for clients: As well as helping clients to measure the things that matter, they also help them create and implement improvement action plans in those areas. In particular, they help clients create and implement improvement action plans for their profit, cashflow, tax exposure, business value and personal wealth.
- Better alliances: They recognise that it is impossible for any independent accountancy firm to be able to do every specialist piece of work to the incredibly high standard that clients deserve. So they enter into strategic alliances with other specialists who will do the specialist technical work where necessary. Generally, the specialist takes all the engagement risk, and shares the fees generated with the practice in the form of a ‘payaway’.
- Better client meetings: They recognise that meetings are the equivalent of a penalty shoot-out in a soccer tournament – that is, the interaction that makes a profound difference to the outcome and how you are judged. So they make them more professional and dynamic by following carefully planned meeting systems, and using high-impact tools, such as tax planning software ‘live’ at meetings to illustrate key ideas and quantify potential benefits.
- Better proactivity: For them ‘proactivity’ is not an empty promise on their website and in their brochure. They have developed systems to ensure that genuine proactivity, of the kind clients really value, is part of the culture and habits of the firm. They have also discovered that the more proactive they are, the more additional services their clients want to buy from them.
- Better service: They understand what excellent service means to the type of clients they want to attract, and have focused their energy and designed their systems in order to deliver that. They focus on both the substance of service excellence (e.g. speed, accuracy, impact, etc), and on the experiential aspect (e.g. showing genuine interest, using plain English, ‘wow factors’, etc).
- Better clients: They understand that their time is a precious commodity, so they ration it wisely. Rather than try to please every conceivable type of client, they decide the types of clients they really want to work with, and build the practice around them. That way, they attract more of the right kind of clients, and can afford to get rid of the ‘wrong’ kind of clients. Typically, this results in them earning more money, doing more enjoyable work, and having a better life-work balance by working with a smaller number of clients, paying higher average fees.
- Better pricing and cash management: They recognise that the only sustainable way to provide a premium service is to charge a premium fee. They understand that clients hate surprise bills, and so rarely use timesheets for billing purposes. They also understand that, to clients, every bill is a value bill, since the client will not be happy unless it represents good value. So, wherever possible they use value pricing to make it crystal clear that the value far exceeds the fee. And where value pricing is not possible, they use pricing software to generate fixed prices that are acceptable to the client, and fixed price agreements to formalise the arrangement. They also use Extra Work Orders to ensure that extra work is translated into extra fees. And they collect most of their fees by direct debit, often by instalments and usually in advance of completing the work.
- Better team work: They understand that the partners cannot and should not try to do everything. They recognise that leverageable success comes by fully involving the team at every stage. Listening to them properly, and valuing their input. Sharing all the key numbers with them. Trusting them. Delegating most of the work to them, after first giving them the tools, training, systems and support they need to do a proper job. And treating and rewarding them well.
- Better systems : They do not leave things to chance, and they do not rely on their people remembering what to do. Instead, they create systems to ensure that everything can be done to the same high standard, every single time. Technology plays a key role in streamlining and automating these systems. And, of course, they also help their clients to do the same.
- Better marketing: They do not leave referrals to chance, either. Instead, they use referral systems that leverage their time. They don’t just look to clients and bank managers for referrals, they actively cultivate a much wider network of referral sources. They understand that in order to get people telling others about them, they have to create a game the client wants to play, and give them a compelling story to tell. They also test a wide variety of other marketing strategies to find the ones that work best for them.
- Steve Pipe FCA is a leading researcher. Contact him via [email protected] and at www.stevepipe.com