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The capital advisor: Accountancy, but not as you know it

By Perttu Jalkanen, co-founder and CCO, AREX Markets

Several factors in the past 12 months have accelerated the role of the accountant beyond the realm of audit and compliance, and into the role of a perceived trusted advisor for small and medium size businesses.

One recent survey by Sage found that 82% of UK accounting professionals agree that customer expectations have widened to include services such as advising on relevant finance and accounting technologies.[1]

The same survey reported that 79% of respondents are confident or very confident in providing business management and advisory services, such as marketing, cash flow, HR, people management, and growth modelling.

The question is – without government backed loan schemes to fall back on – how confident are accountants in recommending financing? Specifically, the right type of financing partner for this client, in this particular situation? Options are proliferating – is the accountant on top of all of them?

During Covid, businesses, particularly the small and medium sized, were hit with a cash crunch. Revenue suddenly dried up, and payments were either withheld or longer credit terms requested, meaning cash was locked-up in unpaid invoices. For some sectors, late and unpaid invoices were already crippling to the point of threatening business survival.

Research carried about by a network of UK accountants and reported by the BBC in April 2020 predicted that a fifth of small and medium businesses[2] would not survive, due to insufficient cash. It’s well known that longer credit terms and late payments hit small and medium size firms the hardest. SMEs have rarely needed trusted financial advisors to provide the mid- and long term options quite so much.

The accountant-as-advisor model is a key revenue and client retention driver for accountancy firms.[4] After all, most accountants are themselves also small business entrepreneurs in their own right. This trend is at play well beyond the UK too. Finland saw the accountancy model shift from a transactional basis to a more consultative approach a few years ago. Increasing automation of the space had been impacting the traditional accountancy role, which had also struggled to attract new blood to the industry.

The Finnish Accounting Board addressed the problem by seeking to recruit more general business management graduates to the profession, who naturally brought a wider business management perspective to their roles. Add to this a new guard of young entrepreneurs entering the market who were more open to non-traditional finance options, and the country saw a paradigm shift in how accountants could advise and build long lasting trusted relationships with their clients.

As many SMEs grow, what they need is a ‘quasi FD’ who understands the core business agenda rather than purely balancing the books, especially given the technical developments in small business accountancy. Automation, predictive data analytics, and machine learning are resulting in faster, more accurate and efficient processes around payables, receivables, and new insights into financial forecasting. It means data and technology platforms are another vital tool finance leaders are using to add value, lead strategically, and free up time for higher value work. What these growing concerns need is people who can advise on the growth path for the future, rather than solely focusing on the finances of the past year.

To leverage this opportunity, accountants need to understand their Client’s pinch points.

One of the most notable pinch points of the past year, cash flow. SMEs have shown they are open to new or alternative finance options – and able to find and even directly apply for funding options at the click of a mouse. There is a mindset shift, as digital banks continue to disrupt the SME space, accountancy roles will naturally evolve to encompass financial and capital advisory to maintain and scale a business.

Accountants need to define what they and their firms will be confident to offer by way of advisory services around advice, insights, and services, matched to today’s client expectations, as found in a recent survey reported by Reuters.[5] That experience can then be added to and enhanced with the right tools for them and their clients, such as third-party services and platforms. But perhaps the biggest change comes in accountants embracing the ‘f’ word as never before – financing – to help their clients to succeed.

The experiences of accountants and their clients over the past 12 months, augmented by newer advisory services and ethical solutions to B2B payment, will prove invaluable as businesses slowly emerge from Covid lockdowns and meet the challenge of unlocking cash tied up in unpaid invoices. The industry needs to make sure we get from 79% to 100% of accountancy professionals comfortable and able to provide them with new options to take those businesses forward.

By Perttu Jalkanen, co-founder and CCO, AREX Markets

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