Staying in your lane is a theory in which I believe in and forms a fundamental of what I am about as an accountant. We deal in the numbers and leave you in an educated position to make the best decisions you can for your business finances. We do not advise people on marketing, routes to market, buying a house or how to dress!
In general, we love business coaches and have worked with/support some excellent coaches who are very proactive about ensuring that clients understand their own finances and also their business finances. However, (and it is I pretty big however) we have come across some absolute doozies recently where the client or potential client’s business coach has made some interesting recommendations about how a client’s company should be set up.
*all names have been changed to protect the innocent and the not so innocent.
Firstly we should take a look at Peter who was referred to Dan to have a chat with about setting up his business as a limited company as his business coach had recommended that this was the best solution. Peter currently works about 3-5 hours a week within his business and has an annual turnover of less than £1,000 per year. This business has also been running for a few years, with little likelihood of scale in the near future. Peter has no other income.
Peter’s accountancy bill as a sole trader could cost less than £250 for the year, if Peter became a limited company then his accountancy bill would take all if not more than his current turnover. So from a financial point of view, it did not make sense.
His business type did not leave him in need of protecting his other assets from potentially being taken as he had no outstanding finance for the business neither would he need to access any.
We spoke about his finances in some more detail and he does currently receive support from state benefits however, his profit from his self-employment as it currently stands would not affect this. He also had no reason to think that it would in the future either.
He deals with other micro entities and business owners who are not VAT registered or limited companies themselves so from a perception point of view there was no need to become limited.
Such is Peter’s trust in his business coach’s recommendation he walked away from our chat feeling confused but in all reality still believing that the business coach was correct and that he should be a limited company.
We had two choices at this meeting either we could take the easy money, nod and smile whilst setting up the direct debit for this potential client or we could stick with our values and give the best advice we believe in for our area of speciality. Happily, we did and always will follow the second path.
Part of the role of being a trusted adviser to a business is having a conversation about the uncomfortable truths facing a client. We still love to work with business coaches and it is even better if they can attend the meeting with the clients especially if they are the ones pushing for change as that way we can ensure that no breakdown of communication has occurred.
Often it can be the business coach who draws to the attention of a business owner that they do not know their numbers as well as they think they do and that they need a closer relationship with their accountant. We have also known business coaches push their clients to looking into monthly and quarterly management accounts especially in times of growth when they want to ensure that they understand their cashflow.