When I saw the June bankruptcy numbers, I just had to share them with you. They amaze me.
In the first 6 months of 2009, more than 33,000 Ontarians (1 out of every 300 adults!) made filings under Canada’s Bankruptcy and Insolvency Act. That’s a record number both absolutely and as a proportion of the adult population. Each region in the province differs somewhat, but the trend is upward throughout. (If you want the details for your local area, GrossmanCGA now has graphs of the local statistics.)
As the graph below shows, the rate of filings began to rise in 2007, but really took off in the second quarter of 2008. And this is in a time of low mortgage rates.
(Click on the graph to enlarge it.)
Source: Superintendent of Bankruptcy
If this trend continues while interest rates remain low, imagine what will happen when (not, “if”) rates begin to rise. As it is, by the end of the year the annual rate will be around 1 insolvency filing per 150 to 200 adults in the province. That could be about 1 in 100 families.
This means that every CGA in public practice has already seen or will soon see clients who are defaulting on their debts, including debts to their accountants.
What’s a practitioner to do?
Clearly, more services will have to be COD, so a debit/credit card terminal is a must. The trick is ensuring clients always use the terminal, just like a retailer does.
As for larger strategies, I suppose every practitioner has to consider the nature of his or her own business: Is it built on an efficient T1 system with high volumes? Then to weather this storm you may need only to (a) enforce a COD policy for your market-driven fees and (b) increase broad-based marketing to bring in new clients to replace the insolvent ones.
Or is your practice more of a boutique, having fewer clients who pay higher rates? Then these are the clients who can, and many will, pay more for your help in preventing a disaster. These clients already feel threatened and are worried, and so many of them can be motivated to act. How about easing their minds (and earn some fees before tax time) by performing financial health check-ups for these select clients?
For T1-only clients, this could include a full work-up of what we call their balance sheet, but what would probably be better labelled their “Net Wealth”, as well as a checklist to cover off other risks, such as the risk profile of their investments and their insurance coverage. Remember, at tax time we look only at income statements, so the off-season is a good time to look at those neglected balance sheets.
And hey, if we pay our dentist for preventive care every six months, why not our accountant? You can help those clients who are already living close to the edge by leading them to take action before it’s too late. For those who prove to be solvent, the net wealth statement you prepare can be carried forward to track the growth of their wealth. You could even consolidate these into a practice-wide net wealth amount, like money-managers do, and track its progress as well. And if you see the good clients every six months, you don’t have to worry so much about the other ones.
For business clients, the financial check-up is a longer and more complex task, since so many more things can go wrong in a business.
