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Accountants in Bankruptcy

Accountants are well known as the most trusted advisors for small businesses. An accountant is often the first person a small business turns to for advice about managing their business, cash-flow management, improving profitability, reducing risk, maximizing the sale price of their business, and dealing with a crisis.

It may come as a shock to most clients that accountants operating their own public practice and who are therefore in business themselves have the same business failure rates as small businesses in general. That is, they have the same personal bankruptcy rates, and company liquidation rates for their business entities.

The main reasons accountants end up bankrupt (which are the same for all small businesses) are:

  • Lack of experience in managing a business. Accountants are very good with the technical side of things – preparing financial statements and tax returns, but less so with business management.
  • Poor office location. This is a death warrant for small businesses that depend on walk by traffic.
  • Personal overspending. Accountants like everyone else fall into the trap of wanting to keep up and spend like the “Jones”.
  • Poor financial control. This includes poor debtor collection and management.
  • Ineffective strategic management. Accountants fall into the trap of churning out their clients’ work, and not worrying about their strategic business management.
  • Bad investments. This includes real estate, shares, and other businesses.
  • Over-leveraged. Excessive borrowing can be terminal when a business incurs financial difficulties.

The lesson for clients is to only deal with and take business advice from successful accountants. Just because they advertise that they provide an array of services including business advisory for example, does not mean that they are competent in providing this level of advice or are themselves operating successfully. Look for independent testimonials validating their claims and ability to achieve results and provide sound advice.