The Fizz! Blog

If you’re considering whether to work as a sole trader or form a limited company, accountancy fees are a red herring

A frequent question when you’ve recommended to someone that a limited company is the route you’d advocate for them is “can I just check how much those fees would be if I worked as a sole trader instead?”.

That’s a totally understandable question, but actually should not rationally be part of the decision-making process. A conscientious adviser will already have taken that into account when giving the advice! They wouldn’t simply ignore a significant cost.

A literal answer to that question might be something like “If you were a sole trader, those fees would be £1,000 a year lower”. But that’s totally unhelpful as an answer, because the tax liabilities of a typical sole trader are going to be greater than those of a company and its owner, by at least as much, so someone with annual revenue of, say, £50,000 is going to end up in pretty much the same position either way when you take taxes AND fees into account.

You can only sensibly compare that total bundle of “all taxes plus professional fees’ down each route, not just a single component. Otherwise it’d be like deciding to work as a sole trader to avoid having to pay corporation tax, without considering that you’ll have to pay income tax and National Insurance! All of the costs and benefits need to be considered - and as tax rates stand at the moment, the relative professional fees for those two routes aren’t relevant to the decision for anyone who understands how the pieces fit together.

www.fizzhq.com

December is for December things, January is for January things

We were talking with a potential client a few weeks ago.  We’d closed the door to accepting new limited company clients with 31 March 2021 year-ends at that point – they need their accounts and tax returns done by the end of December, and we’re comfortable that we’ve enough to fill the month as it is.  We’ve some existing clients with that year-end where everything still needs to be finished and signed off before the end of the month.  We’ve clients where we need to help them prepare for their approaching 31 December year-end.  There are Self-Assessment Tax Returns to do (we’re pretty good at getting those done well before the 31 January deadline, but end up doing plenty in December and January anyway).  And we’ve got other underlying work too.  So, if we took anything new on, we’d have to drop or delay something that we’re currently intending to do in favour of the new commitment, or work overtime, and we don’t want to do either of those things.

In this case, the potential client didn’t mind if we didn’t do his accounts in December.  He was happy for us to do them late, in January, and he was willing to pay any fines that arose as a result.  The problem is, we’ve January things to do in January.  Self-Assessment Tax Returns are a big thing of course.  Well, can’t we do it in February or March?  We’re doing February and March things in February and March (the first week of February is very committed to VAT return work because of the tax return focus in January, and then we’re spending a lot of time both on preparing our clients with 31 March 2022 company year-ends (which is most of them) for their year-end, and checking in on their tax planning for this year to check that they’re going to be where they want to be by 5 April.

And in April, guess what?  We’re doing April things, and so on and so on.

From the outside, it’s a completely understandable and reasonable request to chuck a bit of work into the machine at a point where it doesn’t naturally fit.  There are certainly accountants who do see their work as more of a transactional conveyor belt where the work is the work, and you can just add it to the queue.  But for firms like us, accompanying clients through the year in a considered way, then – unless the firm happens to be running below capacity - it unfortunately just doesn’t work.  You need to try and jump into the machine at the right time (which, for a limited company, is very likely to be before its year-end, not after it!).

www.fizzhq.com

Doing great work is the best form of business development

There's an accountant who blogs prolifically about the development of his accountancy business, and has done for years - readers of AccountingWeb would know exactly the person we mean.  We like reading his stuff, and enjoying his account of his journey.  Although he gets *a lot* of stick from some people, we really like having him in our virtual lives - though we would virtually never make the same business decisions as he would.

He generally has someone working for him, maybe two, and constantly battles to get to a position where his staff are doing all the actual accountancy and tax work, freeing him to work on business development and improving the systems in the business, and reduce his contact with clients.  This is almost always a battle he loses, since staff retention tends to be an issue, and he's continually drawn back into doing actual technical work.

Fizz was started as a one-person business at the end of 2007, which we think is pretty much when the blogger was getting started too.  The Fizz approach was essentially the exact opposite of his.  We've never really done a significant amount of active business development.  We've allocated £30 a month to Google Adwords throughout that time (though these days our spend rarely reaches £10 and we can't be bothered to look into it), and gone to plenty of networking events (to chat to people and hear their stories, with absolutely no anxiety about collecting leads or clients), but that's it.  Our business development spend over nearly nine years will have been less than £10,000 without doubt.

We're now at 13 members of staff.  90% of our new clients over that time have come from referrals - mainly from clients who have liked what we've done for them.  If our man had ignored business development and just worked hard on delivering excellent work and service levels, then we're pretty confident that he'd now have a business significantly bigger than he has at present - and that looks much more like the business he's been trying so hard to create.   In our world, at least, word of mouth is very powerful; you just have to be good and be patient.

www.fizzhq.com

Red Flags! Signs to watch for in potential clients

We meet with lots of potential clients, and happily plenty of them become customers.  However, over the years we’ve noticed a number of warning signs that a potential client may not be tremendously desirable.  We try to be alert to them (though we don't always get it right), since it’s not in anyone’s interests - ours or theirs - to work with someone that’s not a good match.  Here are some of our red flags.

Cancelling the first meeting

We do probably have a few great clients who had to reschedule their initial meeting with us; emergencies do crop up, of course.  However, more often, when the first meeting is cancelled it’s because you and what you do aren’t really very important to them, which is never going to lead to a good relationship.  We’ve come close in the past to implementing a “one attempt to reschedule the initial meeting and you’re out” policy, but haven’t quite gone there – yet!

Arranging a meeting on the quarter hour

Actually, this is a bit more general.  People who try to arrange meetings with such precision are often taking too much on.  It’s no surprise when these ones get rescheduled.  We usually predict in the office that an initial meeting arranged on the quarter hour isn't going to happen, and we're almost always right!

“I just need someone to do my CT600”

This is a really big one.  As we’ve written before, doing a company’s accounts, abbreviated accounts and CT600 (its tax return) is one job, not three.  If someone comes to you saying that they just need you to do their CT600, that very often means that they’ve put some abbreviated accounts into Companies House themselves, which automatically means they don’t appreciate the “all in one” nature of doing a company’s accounts and tax return properly.  Very occasionally, maybe they’ll end up valuing what you do.  Probably not though.

Long delays in correspondence

Sometimes someone expresses an interest in your services, disappears for ages, and then reappears, wanting to pick up the discussion again.  Don’t get drawn in!  What you do is not important to them.


They won’t tell you why they’re leaving their current accountant

Usually, people switching accountants are happy to talk about why that is.  Sometimes, you can’t get any clue from them at all why they’re moving.  We reckon there’s a pretty good chance that it’s because their current accountant has told them to move on!

Similarly - people who seem to have moved from accountant to accountant every year or two.  Not worth it, move on.

“I don’t need to meet up, I just need a price”

You’re explicitly just a commodity to them.  That’s fair enough – there are services that I think of as commodities that other people think are far more important.  If you’re in the business of doing compliance and competing on price, then “I don’t need to meet up, I just need a price” isn’t a red flag.  But for the way we work, it is.

If you've any to add to the list, we'd love to hear them!

www.fizzhq.com

Clients in and clients out, 2014

In the calendar year 2014 we took on 110 new clients.  In the same period, 22 "left".  However, a breakdown of those 22 is:

• Seven people who closed down their limited company because they got a permanent job.
• One person who moved miles away from our patch (who would have used us remotely, but we recommended would be better off with someone locally who could do face-to-face meetings)
• Three businesses that failed, sadly.
• Six clients that we decided weren't a good match for us, so we asked them to find another home.
• Two sole traders who decided to do their own tax returns.
• One person who bought a new business and decided to consolidate all their work with the accountant of that new business.  To be honest, in that situation the default would usually be to move the new business to their current accountant i.e. us - but we'd never felt we had a tremendous rapport with that particular business owner (although we did like them) and evidently they felt the same too!
• One business that moved to another accountant, who we suspect had sold them on a rather aggressive tax reduction scheme.  Fair enough - what one accountant can think is appropriate and acceptable can vary very much from what another thinks.  And maybe they didn't move for that reason anyway.
• One person who moved to another accountant, and we never found out why (which was quite unsettling, since seven days earlier they'd asked to set up a meeting about a new project!).

So overall it's only the last three that decided to go and have similar work done by another accountant.  Which seems a pretty good result overall!  Maybe in an ideal world, nobody would leave, ever, but I'm not convinced - people change over time, and want different things, so zero churn is unrealistic.  We'll take 110 in and three out any time.  Hopefully 2015 will be just as good.

www.fizzhq.com