COVID-19: Why Accountants and Solicitors Need Closer Relationships
The global pandemic has eliminated geographical barriers to expert consultation. Now, both lawyers and accountants have an opportunity to improve their practices.
2020 will conjure up no end of mixed emotions in the future, but for many within the legal and accountancy sector, it will be the year that, out of adversity, a more harmonious working relationship was forged between like-minded firms.
There are ample examples of areas in which the two professions already work well together, but a key one is the opening and closing of businesses.
While it may not be attracting any media attention, the number of businesses stating up since the start of the COVID-19 pandemic has remained robust. The ONS reports that business incorporations were slightly lower during April and May this year at 2,372 (2,786 in 2019) but since then there has been a significant increase. Between 6 June and 31 July 2020, the average number of daily incorporations rose to 3,529 compared to 2,786 in 2019.
While these figures are good news, they likely also mean that some businesses are being established hastily. Now is the time for accountants and solicitors to work together to address the long-term issues that many new business owners will fail to evaluate, and service all of the needs of their clients.
A typical scenario comes when clients establish companies and ask accountants to prepare the necessary accounting and tax preparatory work (such as applying for a VAT registration), and the lawyers to set up the company at Companies House. Even at that early stage it would be advisable for many corporate entities which have more than one shareholder to enter into a shareholders agreement to regulate the relationship between them. This ideally involves a three way cooperation between client, legal adviser and accounting adviser, in order to ensure that the agreement is effectual.
Now is the time for accountants and solicitors to work together to address the long-term issues that many new business owners will fail to evaluate
Where collective advice is not taken – or even offered – the result in the event that shareholders fall out is that one party could be financially disadvantaged. Potentially, the business could even fail due to disagreement about the value of the shares in the company.
With a simple shareholder agreement, many of these issues could have been resolved. In its absence and where there is shareholder dispute, both accountants and lawyers will be involved – but, critically, often not the advisers that were used at inception, as many shareholders will question their ability for not having warned of potential issues which could easily have been avoided.
This is just one example of where greater cooperation between lawyers and accountants is beneficial. The issue, however, is why this cooperation has not happened effectively enough in the past and how the ‘new normal’ will impact on professional relationships.
Historically, effective cooperation has been pretty hit and miss – and often based on personal relationships rather than which firm or individual is best placed to offer the most appropriate advice to a client. There has also been an element of mistrust and the concern that clients would be poached or even receive suboptimal advice, although that was a likely result of informal relationships rather than professional ones. Where relationships did exit it tended to be in quite specific business areas such as corporate M&A activity.
Progress has been made over the last decade, especially in regional firms where genuine sector expertise exists. In these firms, taking effective professional advice, whether legal or accountancy, always involves finding an adviser with the right experience and communication skills to work with the client and professional colleagues. There has also been much greater understanding that expertise in a given specialism or business sector experience enables better client outcomes.
Progress has been made over the last decade, especially in regional firms where genuine sector expertise exists.
Furthermore, organisations have been established to help facilitate greater cooperation between lawyers and accountants, such as the UK200Group. This body represents 65 firms, of which 16 are law firms, with a combined resource of circa 500 partners and 3000 employees. Membership can help with collaboration and building connections, especially nationally.
Post COVID-19 changes
Since COVID-19, there has been a growing realisation that expertise is not tied to geography. That said, lawyers, accountants and their clients in the mid-market do still tend to seek out appropriately experienced advisers located nearby as points of contact who bring genuine benefits, such as local knowledge, experience and contacts.
Also since COVID-19, clients and advisers alike are often more attuned to the fact that some of the historic geographic barriers have disappeared and where specific knowledge is not available locally they can look further afield. As advisers we must be cognisant that this is easier since we all took video conferencing for granted as a means of engaging with clients. This is one area where organisations such as the UK200Group can be of great value as UK-wide introductions are far easier.
While we don’t know what the ‘new normal’ will be I expect video calls and conferencing to continue to be an alternative to face to face meetings. It is not a like for like replacement, but is – and I am sure post COVID-19 is likely to remain – an integral mix in how lawyers, accountants and their clients do business in the future, particularly as flexible working is likely to be one of the lasting changes resulting from working through the current pandemic.
Video conferencing has also added other options for accountants and lawyers to work more closely. For example, mutual training has always existed but it has traditionally meant considerable time spent out of the office due to travel.
Going forward I would expect joint training in M&A in particular to be more prevalent as a result of video conferencing as it can benefit both lawyers and accountants to understand their respective roles. For example, in relation to the determination of a transaction price by the use of completion accounts and what is known as a “lock-box” price determination process, M&A transaction and fund-raisings are part process and part advisory.
In conclusion, lawyers and accountants in the mid-market could certainly benefit from far closer mutual cooperation, from understanding one another’s processes and an overview understanding of regular key issues.
In the post-pandemic world, I would hope and expect to see greater collaboration amongst lawyers and accountants in this area ultimately for the benefit of clients. I would also encourage lawyers especially to look at organisations that facilitate greater cooperation such as the UK200Group.