Continuing on from the first part of this series which dealt with managing cashflow into an accounting practice, part two looks at managing practice outlays.

Once again, it should be stressed that:

• each practice will have unique issues to consider, and responses will differ accordingly,
• these are not recommendations and are not intended to provide or substitute for professional or legal advice, and
• some of the ideas outlined below are not easy to implement, particularly those which impact your firm's employee relationships.

Managing cash outflows

1. Staffing and contractor costs

Typically, wages are one of the highest costs associated with running the practice.

The obvious quandary for practice leaders is that although client demand (or need) for advice is high, good accountants are scarce as hen's teeth, and fee recovery is very difficult.

Adding to the pressure is the fact that poor people management at times like this could see talented staff become flight risks.

Here are some thoughts:

• Engage with partners, directors and senior staff. Practice leaders should be empowered to convey general insights into the financial impact the economic environment is having on the practice. If possible, adopt a "stage by stage" implementation approach for staff costs to avoid changes which go too deep, too soon. Communicate with staff often and well.

Different approaches may be appropriate for different categories of practice staff (e.g. client facing, administrative staff).
Responses might include:

• a temporary reduction in staff working hours
• paid study leave arrangements at reduced wages
• Review graduate recruitment programs, including commitments already made to graduate recruits yet to commence work. If recruitment is continuing, consider the feasibility of:
  • deferring the start date (consider subsidising accounting-related post-graduate study during the deferment period)
  • reducing hours and pay

Remember, a reduced intake now may lead to future staff shortages.

• Explore "bed and breakfast" arrangements for surplus staff. For example, if a client's CFO / HR / Payroll manager needs a temp to cope with workloads, can one of your firm's staff step-in for a month or so? But take care if the client is an audit client. Note also that usually its best for all concerned to keep your staff member on your payroll.
• Well managed accounting practices map talents to roles and adhere to staff performance review processes. Working with HR expertise and (if necessary) employment law advisers, identify employees who are:
  • 'key talents' on track to become practice leaders, performing well (praise and encourage), could do better (explain how), or poor performers (explain why, set turn-around goals)
  • occupying roles which could be redundant
  • candidates for early retirement.

Note that redundancy and early retirement may attract some tax benefits. Consider support mechanisms such as referrals to job placement agencies.
Develop and engage in an appropriate, tailored communication and counselling strategy.

• Most staff are now working from home. Actively manage this not just to help the staff concerned through difficult times, but also to enlist their support to help the accounting practice survive and prosper. Task principals of the practice and senior managers to:
  • schedule regular check-ins using readily available face to face technology (Zoom, What's App etc) and include utilisation, billing etc on the agenda
  • keep staff busy by setting achievable, meaningful challenges and financial targets
  • recognise outstanding effort from an individual staff member or a team of staff (exemplary staff can motivate others)
  • discuss changing job descriptions and challenge staff who say 'That's not my job'
  • encourage pro-active, shared thinking from staff about how to sustain and grow the practice
  • clearly reinforce your firm's expectation that non-chargeable down time be spent productively (e.g. learning new skills, translating knowledge into services for clients)
  • mentor younger staff yet to complete the CA Program or other relevant post-graduate study, clearly stating your firm's expectation that now is a good time to focus on their studies – applaud successful results

• Contractors who provide services to your practice:
  • identify contractors currently engaged by your firm who are nearing the end of their contracted term, determine which contracts to renew and on what terms
  • with legal advice, consider the pros and cons of triggering break clauses in existing contracts
  • consider potential cost savings if any former staff and retired partner / directors can be engaged in genuine contractor roles (noting ATO guidance on the employee v's contractor distinction)

2. Your firm's eligibility for government support

Consider your firm's eligibility for government support measures if you are affected by natural disasters.
If your practice operates in multiple State/Territory jurisdictions, arrange for your in-firm specialists in each jurisdiction to collaborate so that your firm's applications to relevant government agencies in each jurisdiction are accurate and consistent.

3. Office accommodation costs

Renegotiate office rents or even suggest a rent moratorium, having regard to State/Territory announcements on Code of Conduct for rent negotiations. Be prepared to negotiate a 'win-win' outcome with your landlord but also flag willingness to seek recourse to arbitration mechanisms established in your State/Territory. 

Consider whether in the long-term your accounting practice needs less office space in the future (i.e. as one of the benefits in having more staff working from home).

The impact of more people working from home on the commercial property market may result in landlords offering unusually generous lease incentives to renew or relocate. Consider relevant tax issues.

4. Controlling other costs

Review procurement processes and consider centralising decision-making under the stewardship of someone with a keen eye for cost savings and an ability to negotiate.

Adopt a tough negotiation stance on your firm's other inputs (e.g. business software licences, subscriptions, office cleaning, equipment leases etc). Consider whether cost savings arise from moving away from hard copy accounting publications, newspapers etc to online publications.

Some business software houses may offer incentives to capture your firm's business. Note however the ethical considerations (inform clients of incentives your firm receives for promoting a particular brand of software).

Defer payments over longer periods if possible rather than pay amounts 'up-front'. Seek discounts for early or fast payment.

Review all discretionary, non-essential spending and consider suspending (e.g. use of business credit cards, local sponsorships). Communicate the new ground rules to those impacted.

5. Resource sharing, cost pooling, offshoring and outsourcing

Consider whether resource and / or cost pooling is possible with other professional firms and businesses (e.g. mail collection, telephone receptionist or typing services, tax and other compliance preparation, data entry, office cleaning, office building maintenance).

Depending on the size of your accounting practice, carefully consider the pros and cons of offshoring or outsourcing certain tasks.

6. Practice finance

Financing your practice:

• Re-negotiate existing lines of credit with the banks which finance your practice (at both the firm level, and at each individual partner or director level where the principals currently gear their capital or equity contributions). Look for better deals. Be prepared to switch.
• Understand bank lending policies in advance of loan renewal deadlines. Some lenders have tightened credit for 'self-employed' and business clients.
• Explore with banks a moratorium on interest repayments if necessary
• Explore your firm's eligibility for government sponsored low interest business support loans

7. Professional indemnity and other insurance

Shop around for lower cost PI cover, conscious of the possible trade-off between premiums and coverage, and being mindful of your firm's professional and legal obligations to maintain adequate cover. Same for other insurance policies.

8. Budgeting

Recast current year budget and establish a range of inflow / outflow scenarios for use in preparing next year's budget (ranging from best to worst case forecast outcomes)

9. Tax

Apply standard tax planning strategies to your firm's own affairs, such as:

• Vary PAYG instalments for your practice company (if relevant), obtaining where possible a refund for current year instalments overpaid
• Optimise quarterly or monthly tax reporting (if possible)
• Identify and action favourable GST adjustments (e.g. for bad debts)
• Accelerate lodgment of tax forms which trigger refunds
• Accelerate planned capex on depreciating assets if eligible for expanded instant asset write-off
• Convey up to date, current year forecast profitability data to partners \ directors to help them decide whether to vary personal PAYG instalments

10. Partner or Director meetings

Prepare for and conduct regular, frank practice management discussions with the principals (partners or directors) of your practice.

For discussions relating to the circumstances of partners or directors, topics might include:

• Recalibrating partner drawings to actual cash collected
• Revising forecasts for practice service entity distributions (communicate with those who typically receive those distributions)
• Placing partners or directors on 'stand by' for capital calls (with indicative contributions required and timing to replace external debt or to top-up working capital)
• Offering partners or directors a deposit facility to help practice finances at attractive rates but with delayed repayment terms
• Bringing forward partner or director retirements, departures (consider whether to retain as consultants at an agreed rate – carefully manage client migration to new relationship managers)
• Acquisition of partner or director talent from outside your firm to buttress or grow the financial performance of the practice, or invest in an expanded range of client services (e.g. business restructuring or insolvency)
• Expansion of your firm by strategic alliances, acquisitions or mergers with other firms