Insolvency to cause spike in workload for advisors


27th April, 2021

Insolvency spike spells even more work for advisors

The JobKeeper Honeymoon is over, and a new reality check now kicks in for many SMEs and their advisors, writes John Peterson.

In the last twelve months, public accounting and bookkeeping workloads spiked to apparent all-time new heights. But is the worst really behind us?

In this article, I’ll attempt to highlight the new challenges currently facing Accountants and their business clients and why workloads are likely to increase now rather than taper off.

For most, 2020 was a year of challenges never experienced before. Tough, arduous, unrelenting, and exhausting. However, the underlying factors driving change and uncertainty aren’t about to go away.

Ageing Principals are exhausted and struggling with new employee expectations to work from home. Many firms are also reporting morale issues and that they’re falling behind on their lodgement schedules.

Some large corporations have come through in good shape, much better than might have been imagined. But the tourism, hospitality, entertainment and higher education sectors have taken significant hits and face an uncertain and drawn-out recovery.

There are significant mental health issues for the accounting industry and its SME clientele. So, it’s essential to know why 2021 will be no less arduous and begin planning your approach.

What are these new factors to contend with, and what do they bring in terms of pressures and workload challenges?

The end of JobKeeper

With the introduction of JobKeeper in 2020, we experienced a dramatic reduction in the number of Australian businesses going broke.

The fiscal, monetary and legal measures used by Australian governments to offset the COVID-induced economic crisis worked quite well. While we still experienced a recession, things could have been much worse.

For example, during 2020, Australian businesses entering administration dropped by 60 percent. 2021 could therefore present more challenges for SMEs than 2020 did.

Insolvency experts foresee a logical correction to business and personal insolvency rates, anticipating new voluntary administrations, restructures and wind-ups to increase dramatically over the next six months.

Using data from the Australian Securities and Investments Commission, we can see the volume of companies entering external administration (quarterly from 2010 to 2020).

Business insolvency stats over time:

Business insolvency in Australia
Quarterly personal insolvency statistics. Source: ASFA.

These trend lines (insolvencies) are destined for a correction no different to property and share trends. But, as the data suggests, if the correction is imminent, this will surely add to the marathon workload the accounting industry has already been enduring for the past twelve months.

But that’s not all we have to worry about.

ATO Transitions from support to debt recovery

As the ATO turns up the heat, shifting gears from delivering business support to recovering the debts now due, accountants can anticipate a significant amount of distress and pressure brought upon them by their SME clients.

On top of compliance year-end work, this activity will require a large amount of additional time-sensitive additional work to be done by accountants.

Urgent requests to liaise with the ATO on behalf of clients, negotiating payment plans, and spend hours in emotion-charged scenario planning client meetings titled “what are my options” is emotionally distressing work many public accountants do not enjoy nor want to add to their schedule right now.

What can accountants and their clients do to get ahead?

Self-preservation needs to be top-of-mind for accountants, bookkeepers and business advisors.

Accountants must see mental health and physical health as a priority to ensure any levels of sustainability are achievable. Perhaps the GST rollout will give some sense of scale to the upcoming workload, but that’s not what accountants are telling us. This time, things appear even more challenging.

Nearly one in three SME owners have experienced stress, depression or anxiety in the past 12 months, according to a 2020 study commissioned by the Department of Industry, Science, Energy and Resources.

Twenty-eight years of consulting to public accountants and their SME clients tell us that the accountants who’ve adopted a “head in the sand” approach before this next wave of challenges won’t cut it this year.

Life continues to happen just like before. Ageing clients die. People sell out of business and enter the retirement phase. Small business and general commerce will continue to evolve online and through non-traditional channels. And the ongoing pressures of the technology adoption curve for accounting firms all add up to a highly pressurised environment.

Looking back to go forward

The introduction of the GST (goods and services tax) in Australia saw a fundamental shift in the working conditions and type of work performed by public accounting practitioners.

A survey conducted using data from 71 public accountants indicated that job satisfaction and burnout became significant, with many accountants retired or having left the industry due to the burnout levels increasing. In hindsight, successful firms were those that were well structured, and had effective time management and productivity levels able to cope with increased workloads associated with rolling out GST support for their clients.

Put your own oxygen mask on first

In November 2020, a new grant was announced to offer 5,000 accountants mental health training to better help SME owners.

Under the banner “Supporting Small Business Advisors for Better Mental Health”, the grant offered Australia’s three major accounting bodies mental health first aid training to over 5,000 accountants so they might better assist their SME clients. However, accountants would be better off focusing on their personal holistic approach to health and sustainability.

The following diagram demonstrates how, if unaddressed, the ripple effect of 2020 and 2021 is likely to play ongoing havoc for accountants and their SME clients.

Business cycle graphic
Suffering and success are both self-perpetuating cycles in a business. Source: Best Practice Consulting Group.

Get a mentor, personal trainer, therapist, or all three

The most challenging situation for accountants and their clients right now is that most SMEs want more one-on-one time on these challenges mentioned above.

With the expiry of JobKeeper, insolvency is set to jump upwards, and with the ATO adding debt recovery pressure, time-poor accountants are likely to struggle to keep up with the increasing demands placed upon them by their existing clients.

Resilience, energy levels, and mental health are all likely to be tested even further than they already have been.

The marathon continues

One thing is for sure, we all need to be more adept, fitter, robust, more agile and more resilient than ever before, and 2021 is merely the midpoint in the marathon.

Mental toughness is now – in my opinion – the most critical success factor needed to succeed in 2021 and beyond. And in this regard, applying yourself as a business owner to maintain cashflows while also totally disrupting your own model (even if you’re somewhat successful) takes a certain amount of grit and resilience.

How accountants and their clients are travelling physically and emotionally is now the key topic of the day. More time needs to be devoted to reflecting on and monitoring public accountants’ mental and physical health trajectory to understand if we’re headed into healthy mental and financial patterns or spiralling towards mental health issues and business distress.

If we as a profession are unwilling to take this seriously and our own capacity to perform in 2021 reduces, the ripple effect for SMEs seeking guidance is likely to have a massive economic impact.

So please remember, you’re not an island. We all need support from time to time, so don’t be reluctant to seek out any help that’s available.