The UK Economy: An Accountant’s View

Speaking to an accountant is always interesting. Firstly, you are hoping that they can save you some tax money - any savings are more than interesting!! Secondly, they have real insight into the workings of businesses in a way that a stock market or finance column (or blog!) does not.

My own accountant is owner of a small operation. His company comprises 8 people in total and is based in a residential house. He is 36 and purchased the firm a few years ago from it’s founder - in total the company has been trading for a couple of decades.

He explained to me that so far his firm has only been involved in 2 bankruptcies. Both related to the residential property (building and development) sector. As he explained it, both were relatively young guys that had seen nothing but money over the last few years and had expanded significantly on the back of borrowed money. They had expanded quickly and then also borrowed heavily for their own residential property. As the property market started to “pop”, they had a mass of liabilities backing falling asset prices. Ouch!

In essence, this is exactly what the press has been describing for some months now.

The firm has a number of other property related clients, but these are older and more established. Having seen such cycles before, they had taken steps to secure their borrowings for longer periods, they have cash balances to see them through (some) bad times, and have generally taken less risks.

Whether they are able to survive long-term, who can say, this recession could be a very long one. But for now at least, they are in much better shape.

My accountant - as you might imagine - also has to go and give bad news to companies. For some of those firms that he prepares monthly accounts for, he has had to deliver bad news. The news takes the form of, “shed some staff or you will go under”, and must be very hard to give. Ultimately, whether the firms follow the advice or not is up to them.

He has been seeing that just about every type of business is being impacted by this recession. If it turns into a depression - as it may well do - then it will be difficult to imagine firms that will escape untouched.

He is trying to convince companies to scale down to the new lower business levels quickly to ensure that as and when a recover comes - and a recovery will come - they are on the start line, still trading, and ready to go again in the next cycle.

He did, however, also mention a number of individuals that are taking this downturn as an opportunity to “cash-out” and retire. They are of a certain age - in their fifties - and may simply not want to be involved next time around. If that is the case, they are thinking, “Why bother?” and are looking to retire completely.

Making way for the next generation of business owners and entrepreneurs is the natural order of capitalism. Like nature, things grow vigorously but will one day wither and die.

It seems that this slowdown is forcing some of these organisations out. One must presume that if this is how the small business world is impacted, then big business must be near identical.