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Practitioners feel client cash flow concerns

These are unprecedented times for SMEs as they try to navigate their way through the current COVID-19 crisis. Two CPAs with very different client bases reveal how tourism and franchisee clients have been affected.

Susan Muldowney | April 2020

The Far North Queensland region of Cairns has weathered its share of natural disasters, but the COVID-19 outbreak is testing the endurance of its tourism sector like never before. Daniela Marsh CPA, principal at GCG Accountants in Cairns, is seeing the impact first-hand. SMEs in the tourism sector make up about 30 per cent of her client base, and she fears many will never recover.

“They have been hurting since the bush fires early in the year, and then Chinese New Year tourism was pretty much cancelled,” she says. “Now all tourism has stopped, she says.

“They are hoping that when we’re all allowed to travel in Australia again soon, that will bring some of the cash flow back, but how many people are going to be prioritising a holiday when this all settles?”

Tourism and COVID-19

The tourism sector is among the hardest hit by COVID-19. The World Travel and Tourism Council estimates the pandemic could lead to the loss of 50 million industry jobs worldwide. Once the outbreak is over, it predicts it could take up to 10 months for the sector to recover.

For a tourism hotspot like Cairns, Marsh says the impact is catastrophic.

“My clients are worried,” Marsh says. “A lot of them are ringing us because they want a sounding board, but there’s also a lot of questions about the government stimulus packages – how they work and who can apply. The problem that we have been facing is that a lot of information from the government has been quite slow to arrive.”

Franchisees and COVID-19

Sydney-based practitioner Peter Knight FCPA has also seen a spike in calls from his clients. A specialist franchise accountant, Knight is founder of both Knight Partners and Franchise Accounting & Tax.

He says franchisees are facing tough times due to the nature of their business model. While some franchisors are happy to reduce their royalty fees during such a tough time, others are “going hard nosed”.

“Some of the franchisors are just saying, ‘No, we still want our royalty payments’. There are certainly some who are being compassionate, but we’re seeing some pretty horrible stuff.”

SMEs enter survival mode

Knight says the impact of COVID-19 has been tougher than that of the global financial crisis (GFC) because many SMEs have had no choice but to shut shop.

“At least businesses could trade through the GFC,” he says. “For some of my franchisee clients, they’ve been told to go into lockdown. There’s a flat pack assembly franchise in New Zealand, for example, and they’re not allowed to go into people’s houses. There's a lot of people who need to set up their home office, and they normally rely on these guys to put it together.”

Knight says his clients are currently in “survival mode”.

“They are mainly contacting me to ask, ‘What am I eligible for? Can I get my BAS in so I can get some money?’.”

He has taken a proactive approach to client needs by sending checklists about their eligibility for government assistance, such as the cash flow boost, JobKeeper Payment, rent relief and SME grants.

“The idea is to give them some background information so that when they ring – and they do – it’s at least an educated conversation, rather than explaining the whole thing from scratch,” he says.

Service without a fee

For practitioners like Knight and Marsh, support for their clients during the crisis comes at a cost that they are willing to bear. Much of Knight’s current advisory work has not been billed.

“It hasn’t crossed my mind to charge for this kind of stuff,” he says. “I’ve had clients in tears on the phone. It’s just about being there for them and being a good support. I let them know that I’m not a counsellor – I help with the numbers and with their eligibility for funding, but I’m also compassionate.”

When the crisis is over, Knight says there may be opportunities to offer clients new strategic services.

“We might be able to bundle a post-COVID package and provide a couple of hours and a couple of tools and some modelling at a certain fee, but that would be way down the track.”

Marsh believes her practice will be rewarded through loyalty from clients whose businesses survive COVID-19. However, she says unbillable hours may present a long-term cost to practitioners.

“It’s hard at the best of times charging for non-compliance work – a lot of accountants really struggle with the concept,” she says.

“It’s going to create problems for us as an industry, and I think we will also feel it next financial year when people just won’t have the cash flow to get their tax done,” adds Marsh.