Refresher: What’s the difference between marginal and absorption costing?Posted 08/24/2020 by Gill Myers & filed under Refreshers.In this refresher, we’ll be running through marginal and absorption costing which is often somewhat of a challenging topic.In this article we’ll be covering:How marginal and absorption costing are the same and how they differRecap of cost categorisationA working exampleThe different uses of the two methodsLet’s start by clarifying that both methods are concerned with production costs and both require good foundation knowledge of cost categorisation.Marginal costing is based on classifying costs by behaviour, in other words, whether a cost is variable or fixed.Absorption costing focuses on whether a cost is direct or indirect by nature. Generally, if a cost is variable, such as a production worker’s wages, then it’s also direct. Equally, fixed costs are usually indirect, for example, factory rent.This explains why calculations can be ‘built up’ starting with the prime cost, which is the total of all the direct costs, then adding any variable overheads in order to calculate the marginal cost.When we add the indirect costs to the marginal cost we end up with the full cost.For example, if the following costs are known:Then both the marginal and absorption costs of production can be easily calculated by building up the subtotals, starting with the prime cost:Then the marginal cost of production:and finally the absorption cost of production:Note that the administration, selling and distribution costs haven’t been included. This is because indirect costs can be split into production and non-production overheads and we’re just concerned with production costs.So, if the figures used in marginal and absorption costing are the same, except for the inclusion or exclusion of fixed production overheads, why are both costing systems used?Why we use marginal and absorption costingWell, marginal and absorption costing are used for two different purposes. As marginal costing is only concerned with the variable costs of production, it can be used to inform short-term decision making because it’s central to contribution analysis.For example, if the selling price of a WS47 is £40 but a customer wants to negotiate a discounted price per unit, then marginal costing would be used to see the impact a discount would have on profitability. We would do this by calculating the contribution (selling price less variable costs ie. marginal cost) at a range of discounted selling prices. Marginal costing is used to calculate when individual products will break-even and discounts affect the break-even point.However, when it comes to analysing how much profit has been made on total sales over a period of time, for the purposes of the financial statements, then we would need to use the full cost of production, which is calculated using absorption costing.Producing statements of profit and lossLet’s say that we agreed a 5% discount on the sale of 800 units of WS47 and the remaining 200 units were unsold at the end of the period. Statements of profit and loss can be produced under both costing methods but will result in different profit figures.The start of the statements will be identical:The first difference is in the treatment of the overheads. Under marginal costing only the variable production overheads are included at this point, whereas both the variable and fixed production overheads (£2,000 + £5,000) are including using absorption costing:This is consistent with our previous calculations where we ‘built up’ the costs, just presented in a different way.The next difference is in the way that closing inventory is valued. The quantity is not altered by the method, however the valuation is different. This is because under marginal costing, closing inventory is valued at the marginal cost per unit, in this case £24.50, whereas the full absorption cost of £29.50 is used in the absorption method:You can see that there is a £1,000 difference between the closing inventory valuations.The cost of sales is calculated next and, for marginal costing, requires the fixed overheads to be added:You can see that the £1,000 difference in the closing inventory valuations impacts on the cost of goods sold figures.Marginal costing values closing inventory at a lower cost per unit than absorption costing and this means that the cost of goods sold figure is higher using the marginal method.The impact for both methods though, is followed through to the profit figures:The difference in the profits is directly attributable to the £5 per unit difference in the valuation of the closing inventory ((£29.50 – £24.50) x 200 units = £1,000). This is because the absorption method allocates a proportion of the fixed overheads to both the actual units sold and the closing inventory. However, the marginal method attributes all of the fixed costs to the period resulting in the lower profit figures.It is due to this impact on profits that IAS 2 Inventories stipulates that inventory should be valued on an absorption basis, when included in financial statements, as it accounts for all of the production overheads. The standard says that the cost of inventory should include all costs of purchase, costs of conversion including fixed and variable production overheads, as well as other costs incurred in bringing the inventories to their present location and condition. It is also why the non-production overheads were not included, until they were shown on the profit or loss statements.In SummaryThe key differences between marginal and absorption costing are:Purpose – marginal costing enables well informed short-term decision making, and absorption costing calculates the cost of output as well as providing the closing inventory valuation for inclusion in the financial statements.Calculation – marginal costing is based on variable costs but excludes fixed costs and absorption costing includes both direct and indirect cost. Generally if a cost is variable it is also direct, therefore, the addition of fixed overheads to the marginal cost will give the full absorption cost.Profitability – when there is closing inventory there will be a difference in the profits calculated by the two methods. The difference in profit will be explained by the difference in the value of the closing inventory.Use – marginal costing is not allowed for financial reporting purposes whereas absorption costing can be used for both financial and management accounting.
SEISS v2: how will the self-employed cope?Posted 08/18/2020 by Mark Rowland & filed under Coronavirus.As the next phase of SEISS kicks in, how well-placed are the self-employed cope with the downturn?When the Self Employed Income Support Scheme (SEISS) was announced back in May, it was welcomed with open arms by self-employed workers across the country. At the time, the country was still under extensive lockdown, and many self-employed people were completely without work.Now, as the second stage of SEISS gets underway, self-employed workers are in a different position. They are more able to bring in an income and less desperate for the relief. At the same time, SEISS offers an opportunity for them to bank some cash and make preparations for any possible tough times ahead. To be eligible, an individual has to:Have more than half of their income come from self-employment.Have a trading profit of less than £50,000 in 2018-19.Or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19.So how are the self-employed coping at this point in time? Accountants explain how they’re doing.The self-employed are better placed than owner-managers Steph Rickaby of Sunflower Accounts“Many of our self-employed clients have seen a drop in income and have been desperate to make a claim. They have been extremely grateful that they could continue to work and market their business unlike if they were on furlough as a limited company director.“We have been working hard with our clients to arm them with the tools to survive. We have been putting on webinars regarding business continuity, helping them look at short term business planning, budgets and cashflow. Self-employed clients have been better placed than freelancers operating through a limited company because they have been able to continue to work and market their business and plant seeds for the future. This has really helped them push forward and diversify their offering.“We feel that HMRC did an incredible job in getting this scheme up and running in such a short space of time. The main challenge was that clients had to make the claim themselves, we as their accountant couldn’t make the claim on their behalf and a number of our clients did not have their own access to their HMRC government gateway, therefore we had to help them gain access to this system which sadly isn’t the most intuitive for clients to understand.”Next step: Help clients gain access to more funds to help them get through the next few months.Verdict: The self-employed are coping well, thanks to the conditions of SEISS.The self-employed aren’t thinking enough about their tax liabilitiesMike Parkes, Technical Director at GoSimpleTax “The scheme is vital for many workers. However, it’s important for self-employed people to understand the implications of emergency support packages on future tax returns. According to a recent survey of our database, 64% admitted that they’re still unclear of the eventual costs of accepting Government grants.“It’s essential for self-employed workers to check HMRC small print – particularly those individuals who didn’t originally qualify for the first grant because of pregnancy or becoming responsible for a new child, or because they were military reservist, as they’re now able to claim for both the first and second grants. There are also further exceptions to the normal rules of the scheme, including those who are subject to the loan charge, people who are non-resident in the UK, and workers who claim the remittance basis.“Understanding the tax liabilities that come with accepting these measures can be daunting and confusing during an already complex time. Like the small business grant, it doesn’t need to be repaid, but it is still subject to Income Tax and Self-Employed National Insurance, albeit on the 20/21 tax return.”“Clients need to complete their 2019/20 tax return and submit them to HMRC as soon as possible. This will clarify the payments they need to make on the 31 January 2021 and 31 July 2021. We should also start to draft your 2020/21 tax return. This will give you a good understanding of future tax liabilities allowing the maximum amount of time to prepare for payments.”Next steps: We would advise people to use this time to get their tax affairs in order which, in the long term, will provide them with a much clearer picture of their finances.Verdict: The self-employed need to think about the long term as well as the short.The second stage of SEISS offers opportunities for investmentDella Hudson, director, Minerva accountants“Most self-employed people are doing a lot better now that they’re able to get out more. With the first grant, it was certainly the case that they needed it. With the second, we’re looking at it and assessing if they’re still affected and for the most part, they are, but it’s more of a case that their earnings are down a bit, rather than previously when earnings had stopped.“I haven’t had any self-employed clients go back [into employment], but I’ve heard of other [practices] that have. The self-employed life is often marginal anyway, so it doesn’t take much to suddenly push it over the edge. You might have all of the flexibility as a self-employed person, but you also have all of the risk. If all of a sudden, those risks outweigh the benefits, you might as well just go back to having a regular income.“As my self-employed clients are earning, we can help them be a bit more strategic in how they use it. We’re looking at how they could invest it in their business – a bit of tech or something for the workshop. I encourage people to use it to buy equipment from other small business owners. It’s a way of improving your business while also helping others and keeping cash flowing around the economy.”Next step: Work closely with clients on how they can invest the money they have to put them in a better position going forward.Verdict: The position for self-employed people is better. They can use this grant for good.
HMRC updates – SEISS and CJRS changesPosted 08/18/2020 by AAT Comment & filed under HMRC updates.Here are the latest updates from HMRC for agents and their clients.Second Self Employment Income Support Scheme (SEISS) now openHMRC has recently contacted self-employed people who may be eligible for the second taxable grant under SEISS if their trading profits have been adversely affected by Coronavirus. The scheme is now open for claims, and customers have been given a date to make a claim. They can claim any time between their allocated date and 19 October 2020. The eligibility criteria are unchanged. Those who were eligible for the first SEISS grant will be eligible for the second grant, so long as their business has been adversely affected since 14 July 2020. This typically means that their business has experienced lower income and/or higher costs because of coronavirus since 14 July. There is no minimum threshold over which a business’s income, costs or activity need to have changed by, but they will be asked to keep appropriate records as evidence of how their business has been adversely affected.The second taxable grant is worth 70% of average monthly trading profits, a reduction from the 80% available under the first grant. This will be paid out in a single instalment and will be based on three months’ worth of trading profits and capped at a maximum of £6,570.Eligible parentsSelf-employed parents whose income in 2018-19 (and their tax records) may have been affected if they took time out to have children will also now be able to claim if they meet the eligibility criteria.Getting helpGuidance on SEISS is available on GOV.UKExplainer video on HMRC’s YouTube channel.Information for new parents, including an online form on GOV.UK.Agents and accountants cannot claim on behalf of their clients. This is because it will trigger an alert which leads to delays in payment reaching people.Coronavirus Job Retention Scheme: what you need to do from 1 SeptemberThe Coronavirus Job Retention Scheme (CJRS) is changing from 1 September:CJRS will pay 70% of usual wages up to a cap of £2,187.50 per month for the hours furloughed employees do not work. Employers will still need to pay their furloughed employees at least 80% of their usual wages for the hours they do not work, up to a cap of £2,500 per month. Employers will need to fund the difference between this and the CJRS grant themselves. The caps are proportional to the hours not worked. For example, if the employee is furloughed for half their usual hours in September, the employer is entitled to claim 70% of their usual wages for the hours they do not work up to £1,093.75 (50% of the £2,187.50 cap).
Refresher: All you need to know about standard costingPosted 08/18/2020 by Gill Myers & filed under Refreshers.In this refresher, we brush up on the basics of standard costing and how to use it to create a budget and monitor it.This is what will be covered in this article:How standard costing is usedDifference between how standard costings is used from general budgetingWorked budgeting example using a ‘normal’ standardStandard costing is used by organisations to calculate the standard cost of products and forms the basis of selling prices and budgets. However, it differs from general budget setting because it concentrates on cost units, in other words the cost of individual products, as opposed to the costs of the business’s sections or departments.Standard costing is used in all stages of the budgetary process; planning, decision making, monitoring and control.Standard costing using an exampleLet’s think about manufacturing a pair of shoes. We would have to consider the three elements of cost: materials, labour and overheads, classified them into direct and indirect costs, and categorised them as fixed, variable or semi-variable.If our shoes require half a metre of leather and two soles per pair, then these are the raw materials and will vary in direct proportion to production. Labour cost can be both direct and indirect, for example, production workers and supervisors. Rent and rates for our premises are examples of fixed costs which are either recovered via an overhead absorption rate if we are using absorption costing or covered by product contribution if we are using marginal costing.By combining our understanding of cost behaviour, the costs/rates and a detailed understanding of the quantities required for production, we can create a cost card, in this case using marginal costing:Because all the elements shown are variable costs, the rates are multiplied by the quantities required to calculate the total cost of each element. These are combined to give the total marginal cost of making a pair of shoes.This is the standard cost of one unit and is the fundamental basis of budgetary planning. For example, if we are planning to manufacture 500 pairs of shoes then it is easy to use the cost card to calculate that the marginal cost will be £9,625 in total (500 x £19.25).However, in order for a budget to be accurate, the costs and rates must be up to date and the production quantities and times accurate. There will obviously be discrepancies if a machine breaks down and our workers are idle for a period of time or there is a shortage of materials and we have to use lower grade leather that results in higher than normal wastage.Four standard types for variationThere are four types of standard that allow for some variation, so it’s important to be clear which is being used:Ideal – assumes full labour efficiency with no wastage of raw materialNormal – is the current expected cost of a product and allows for a degree of wastage and inefficiencyTarget – allows for normal working conditions, with allowances made for waste and inefficiency, but is set at a level an organisation wishes to achieveBasic – is based on historical information so enables comparisons over timeLet’s say that our standard is ‘normal’ and was used to set a budget for the manufacture of 500 pairs of shoes. This means that in our planning we have allowed for some expected waste and inefficiency:Monitoring budgets is the next stage and this is done by comparing the budget to the actuals using variance analysis. Monitoring budgetsIf actual production was 600 units, then 100 more pairs of shoes were produced than planned, this will result in higher total variable costs but will not affect any budgeted fixed costs due to the costs’ behaviour.Next we look at how to flex budgets, in order to remove the effect of changes in production volume so that these predictable variations do not obscure other differences, and to calculate basic variances:The key objective of monitoring budgets is to understand why the actuals are different to the flexed budget so that decisions can be made to control costs that vary significantly from the standard and bring them back on track.Understanding the varianceThe variance for leather is £200 adverse, meaning that the spend on this material was more than planned. The question though is why. Has more been used, or wasted, than expected, or did it cost more per metre than planned?Standard costing allows variance analysis to drill down into usage and price variances for materials and efficiency and rate variances for labour and the idle time variance to provide better explanations of the differences. Maybe there was a shortage of materials and we used different leather from planned, which was harder to work with, so took more time and resulted in more rejects. This could also explain the adverse labour variance.Acting on the varianceLet’s assume this was the case. First, we need to decide if this is a significant variance or is within the ‘normal’ standard’s tolerances. If it’s deemed significant, we then need to know if the situation is temporary or permanent. If the issue is now resolved, no action will be required. However, if it isn’t, we might need to look for a new supplier or new materials.Maybe production processes will have to be amended so they are more suited to the different grade material and training put in place for production staff.Finally, we should review the standard. If a permanent change is made to a cost or quantity on a product’s cost card, it should be reflected in the normal standard to ensure it’s relevant and accurate, bearing in mind it is the benchmark to which our actuals are compared.
Tell us your stories – how have AAT members helped in the crisis?Posted 08/17/2020 by David Nunn & filed under Coronavirus.Accountants and bookkeepers are not often bracketed with health workers, shop workers and delivery drivers when it comes to responding to the crisis.But we know you were very much on the front-line when the country was sent into lockdown, triaging hurting businesses and helping employers deal with unprecedented financial challenges.Tell us your storiesWe need your help!AAT is working with Accounting For Sustainability to show how you contributed in helping the country at a time of crisis. And – equally important – how you are helping organisations to rebuild in ways that will make them more resilient in the future.We need you to tell us about individual members who helped to stabilise, stimulate or build resilience. This may be through:valuing your workforce,advocating trust and collaboration, orfocusing on innovation.Click the button below to tell us about AAT members who have gone beyond the minimum professional requirements and have recognised that they have a role to play in making the rebuild a sustainable one.How this information will helpThese stories will be used to form part of a wider A4S project to capture and interpret the response to Covid-19 and provide recommendations for making the post-Covid -19 era a sustainable one.Our hope is to build evidence that:Accountants are at the heart of efforts to build sustainable and resilient organizationsSustainable businesses have the holistic outlook that makes them more resilientWe look forward to hearing from you!Tell us your story
Self study and lockdown: What it was like to take a socially distanced assessmentPosted 08/17/2020 by Sophie Cross & filed under Coronavirus - students.AAT self-studier, Sarah Marks, tells us about her experience of learning in lockdown and socially distanced assessments.Where are you now with your AAT studies and what has your journey been like so far? I’m 33 now but I didn’t do very well in school, particularly in maths. I decided to resit maths and finally passed and I ended up really enjoying it. My husband suggested that I take a short bookkeeping course so I did AAT Level 1 Bookkeeping over seven weeks and then Level 1 Accounting Software. I really liked those courses so I began AAT Level 2 Foundation online just as lockdown started this year. I’m looking to progress to Level 3 but I’m not sure of the career path I want to choose yet. I’ve been a stay at home mum for six years and I’ve had a couple of offers of employment already but they haven’t worked around school hours. I want to get as many letters at the end of my name as I can and maybe run my own practice one day or work my way up in a company. How have you found self-studying during the pandemic? As I’m doing it all online, Covid-19 hasn’t really held me back in my learning. I was always going to take the online route as my husband works full-time and I have two young children. It’s great that I can be totally flexible when I study and grab an hour here or there if the boys are playing nicely together or watching a movie. What challenges have you faced? I’m quite an anxious person and my worry shot through the roof with the pandemic. My youngest has a heart condition so he’s in the vulnerable category. Studying was a welcome distraction at times. I had to get on with something so I’d just find a quiet space in the house and crack on. Some of the units are short and might just take a day but some can take a week for you to to get a proper understanding.Have you taken any assessments? I’ve sat three of the five Level 2 exams so far and booked them for when I was lucky enough to have a bit of childcare in place. I’m looking to get the rest booked in the next two to three weeks so I should have the qualification by October. It’s so close I can almost smell it!How did you feel about taking socially distanced assessments? I was freaking out at first especially because my son is in the vulnerable category so I really need my space respected. I get nervous with exams and don’t normally cope that well anyway but the assessment centre was so good at helping to settle my nerves. How did you find an assessment venue and book your assessments? I went on to the AAT website to find an assessment venue. Quite a few are closed at the moment or only serving their own students and as I’m learning online I don’t have a designated centre. I found Pittman’s in Leeds city centre and paid online for the exam and just showed up on the day. I haven’t had any complications.How helpful was the venue with regards to taking your exams while social distancing? They gave me all the directions on email before I arrived and I was guided through the whole process when I got there. You wait in reception for someone to collect you and they respect social distancing at all times. The rooms are divided with screens and there’s no one near you. You need to keep your mask on if there are other people in the room. The assessment centre was very calm about the whole thing which made me feel welcome, safe and settled. Further reading:Accountancy Terminology: Here’s what you need to know11 trends from Covid-19 that could affect your careerStudent Stories: What it was like to take a socially distanced exam
Key accountancy terminology: A bitesize glossaryPosted 08/14/2020 by Gill Myers & filed under Students.This bitesize glossary gives a summary of words that you may encounter when maintaining the accounts of sole traders and partnerships, using an accounting system that has been created by software. It is not definitive and has a few useful extras, as its purpose is to acknowledge the range of terminology you are likely to come across and equipped you with the knowledge and skills to recognise groups of terms and to use them interchangeably. Key term Also known asReferred to in accounting software asGeneral ledger Main or nominal ledger Chart of accounts / NominalIncome Revenue Revenue from sales revenue Turnover or sales Expenses Overhead, direct cost/ cost of sales or cost of goods soldDepreciation charge(s) Depreciation Diminishing balance depreciation Reducing balance depreciation Carrying amount Net book value Current assets Inventories Stock Cash and cash equivalents Cash at bank and in hand Current liabilities VAT Sales taxNon-current assets Fixed assets Non-current liabilities Long-term liabilities Equity Capital Retained earnings Profit Profit from operations Operating profit Profit/loss for the year/period Net profit/loss Drawings Sales ledger Receivables ledger CustomersSales ledger control accou-nt (SLCA) Trade receivables account / Accountreceivable /Trade debtors Other receivables Prepayments Purchases ledger Payables ledger SuppliersPurchases ledger control account (PLCA) Trade payables account / Accounts payable Trade creditors VendorsOther payables Accruals Subsidiary accounts Memorandum accounts Sales invoice Invoice Purchase invoice Invoice BillFinancial statements Financial accounts Statement of profit or loss (SoPL) Income statement Statement of financial position Balance sheet Furher reading:Good communication skills: the key to your dream role?Earn as you learn: 10 top tips to becoming a successful apprenticeThere’s no better time to pass your Synoptic: Top tips for success
Second wave? Businesses need their accountants more than everPosted 08/11/2020 by Mark Farrar & filed under AAT news, Skills debate 2020.Scientists are worried about the second wave of coronavirus (Covid-19) infections, but the attention is also on the second wave of what hits business. There’s the small matter of the government paying for all of the measures put in place to ease the economic pain of the lockdown. Will it be through taxes? NICS? There’s an opportunity to do something quite dramatic with tax, though I suspect timescales and admin might get in the way. And of course, Brexit, which seems so far away now, is still looming on the horizon, as much as we’d rather not add that to the list of today’s challenges. The next hit to businesses and the economy is likely to land in the first quarter of 2021, when all of this comes home to roost – in addition to the requirement for businesses to pay their deferred income tax and VAT payments originally due in 2020. While HMRC has said it will be lenient to those that still cannot pay, we’re likely to see more companies going under, and more still taking on debt, as they struggle to find the cash to pay it. It’s a ticking economic time bomb when times are already tough. We have eight million people furloughed and two million people unemployed. As the furlough scheme winds down, we will see more redundancies across the board. This will not just go away when lockdown ends. The road is, unfortunately, longer than that. Accountants in industry and practice have found themselves taking on much more of a hand-holding, monitoring and strategic role in the middle of all of this. Businesses need the support of their accountants more than ever, and in turn they have had to modernise – and modernise quickly. Advisory phone calls and check-ins are happening on a monthly, sometimes weekly, basis. That brave new world of the accountant as a proactive trusted advisor has arrived practically overnight. Those who have run with new technology are coming through this in a better position than those who haven’t. It’s absolutely highlighting the need for new skills and training ahead. Of course, there’s a danger that in the process of coping with Covid-19, businesses shut everything down – including skills development. I’ve seen first-hand in another sector that if everybody does this, you can see the gap in skills for a decade or more. It puts a hole in the system. When this downturn is over, businesses are unlikely to want to revert back to the old ways of doing things. The value of that proactive, digitally-aided accountant will be very clear. We must make sure we have the skills – and the willingness to learn – to meet that demand, or we could be left trailing behind the rest of the world.
Meet the accountants who fight firesPosted 08/11/2020 by David Nunn & filed under Inspiring stories.Meet some professional accountants who are giving back to their communities as retained firefighters.Firefighting may not be a job you’d ordinarily associate with accountancy, but there’s a large number of UK accountants who are currently working as retained firefighters – more so than you’d think. Somerset-based accountant Ellie Watts featured in the Daily Mirror four years ago when she enrolled as a retained firefighter. At just 20 years old at the time, she was the country’s youngest female firefighter. Retained firefighters or “on-call firefighters” are professionally-trained firefighters who respond to local emergency calls while in full-time employment. They hail from any industry and occupation, from retail to mechanical engineering and – of course – accountancy. A casual search on LinkedIn shows a large number of chartered accountants who also have “on-call” or “retained firefighter” in their employment history. So what’s the pull? Giving back For chartered accountant Phil Hutton, programme financial controller at Thames Water, it’s about doing something for the greater good and giving back to the community. Hutton decided to train as a firefighter after chatting to his local fire service, who were doing demonstrations at his daughter’s school fête. “Working in the private sector can sometimes leave you questioning what you’re doing for the greater good, and firefighting gives me a real purpose,” explains Hutton. “I also find at dinner parties that people are much more animated when I talk about firefighting than accounting, so that’s a bonus!” Hutton, who has been a retained firefighter for two and a half years, says both roles give him immense job satisfaction, albeit in different ways. “Being an accountant appeals to my business mind – commercial thinking, analytics and using my qualifications that I worked hard to achieve. Financially, I’m also better off than if firefighting were a full-time role; and that’s a consideration, too.” Hutton says his firefighter role has been more diverse than he ever expected. As well as attending emergency fire calls, he’s responded to road traffic accidents, and supported elderly people who have had to wait for a delayed ambulance. Hutton’s most memorable call-out was at a large fire in an Ocado warehouse in Andover. He had been one of the first on the scene, but because of the size and scale of the fire – which destroyed the entire distribution centre – there were several crews in attendance and he stayed there most of the night. If the idea of having a full-time accountancy role while working as a firefighter sounds exhausting, it is. Yet Hutton insists it’s never affected his day-to-day role because he’s on-call in the evenings and during weekends. But if a call-out like the one in Andover results in a particularly long and gruelling response, he survives on caffeine the next day to get him through. “Both roles work well together and give me something quite unique, so I feel lucky to have the best of both worlds,” he explains. Solving problems It’s a similar story for Andrei Viscu, an accountant and finance project analyst at the UK’s innovation network, Knowledge Transfer Network. Viscu became a retained firefighter in March 2019 after attending a “have-a-go-day” at his local fire station and has never looked back. Like Hutton, Viscu is on-call outside of working hours, so the two roles rarely overlap. “I like being both a financial professional and retained firefighter for the same reasons,” says Viscu. “Both roles rely on accuracy and allow me to use a methodical approach to solving problems.” Firefighting, says Viscu, brings an added element of job satisfaction to his working life. “No two call-outs are the same and there is always something new to learn from the more experienced crew members. The unpredictability and not knowing what to expect when the alarm goes off is very stirring.” Viscu still remembers a call-out he attended just four days after completing his Immediate Emergency Care course during his firefighter training. He had been initially sent out to help move a patient into an ambulance, but ended up assisting with CPR. “I helped deliver six shocks from the defibrillator to try to restart the heart before transferring the patient to hospital,” he recalls. “I found out later that the patient was back at home recovering a week later. Considering the overall UK survival rate for cardiac arrest outside of hospital is around 1 in 10, it felt extremely humbling to know that my input helped save a life.” Saving lives The thought of saving lives was what inspired accountant Josh Muir to train as a retained firefighter, too. Working as an accountant at the Cambridge Fire Service, Muir was no stranger to the firefighting world, but it was after speaking to a few friends who were already on-call firefighters that he decided to give it a go. And because he already works for the fire service, Muir can respond to calls during his working day. He says it was particularly challenging during the summer of 2018, as there had been a lot of field fires and he was on call-out most days. Times like this mean Muir has to be more organised than ever to ensure his main role is not affected by his retainer role. “If it means staying later a couple of nights a week then that has to happen,” he says. Muir says he thrives on the challenges the two roles bring – the sense of achievement he enjoys from both has given him a whole new perspective on life. “One minute I can be crunching my way through a spreadsheet and the next I can be out helping someone in need. You get to work in some great teams and gain valuable experiences in both the office and on the fire ground.” Responding to coronavirus Coronavirus (Covid-19), however, has brought changes to the roles of many firefighters. Hutton says face-to-face training has temporarily stopped and more time is spent on cleaning and disinfecting equipment. Crews are now required to wear PPE, especially on medical calls or if they’ve been called out to someone who has been self-isolating. Many crews are now assisting local ambulance services to help with increased demand, such as the team at Viscu’s fire station at Wheatley in Oxfordshire. “Firefighters join the service to serve their communities in any way they can,” says Viscu. “We’re relied on to solve emergencies, whether it’s saving lives, property or protecting the environment. We all want to make a difference in any way we can, that’s why it’s so rewarding.” “Working in the private sector can sometimes leave you questioning what you’re doing for the greater good, and firefighting gives me a real purpose. “It was particularly challenging during the summer of 2018, as there had been a lot of field fires and I was on call-out most days.”
Cash flow planning for a second wave of coronavirusPosted 08/11/2020 by Mark Rowland & filed under Coronavirus.As businesses look to recover under the looming shadow of a potential second wave of coronavirus (Covid-19), accountants explain how they’re preparing businesses to navigate choppy waters. Businesses find themselves at an uncertain crossroads. While the lockdown is easing and business is gradually picking up, there is also the possibility of a second wave of COVID-19, which could potentially force them to close down again.Cashflow planning has become the most important focus for businesses over the past few months and remains a top priority. Accountants’ clients are more aware of the dangers and importance of good cash flow management, but they’re also in a potentially more precarious position than they were before. Accountants are advising them to do several things to make sure they’re prepared:Scenario planningReview of spendingUse of technologyTightening credit controlFive accountants in practice explain how they’re approaching the conversation with their clients and sentiment about the possibility of a second wave.Resources Dealing with the tax issues from Covid-19A practical briefing on the tax implications arising from the pandemic.View Impact of coronavirus on financial statementsKey changes to preparing financial statements in the light of coronavirus.ViewNow is not a time to take risks –businesses need money in the bankSamantha Perkin FMAAT, director, ZamuI’m advising clients to manage their money very carefully; don’t take risks, don’t necessarily invest in your business in a way that you normally would at this point in time. If the money’s in the bank, hang on to it.There are some practical aspects to it, like helping clients do a spreadsheet. We’re looking at clients’ deferred VAT bills and helping them to work out how they’re going to pay it, making sure they’re putting enough aside per month. Another example is professional landlords that have deferred their rent. They will get that bill and they will have to cashflow it. So they have the mindset and ability to put money aside, or do they just need to pay it now?I’m going through clients’ spending and asking them: what can you live without? I get it’s going to impact the economy as a whole, but it’s about survival. The good news is that clients are sitting up and taking notice more this time – most are expecting a bad second wave that will happen either locally or nationally at some point, and they aren’t expecting as much help from the government this time.With a couple of clients, we are doing detailed scenarios using 3 options. These are general guesses. They are all annual growth/retraction and part of budget assumptions. For example:Near-termPeriod1 – Optimistic2 – Normal3 – Worse Sept-Dec 20No change-5%-15%Jan – March 21No Change-7.5% -20%April – June 215% growthno change-7.50%Long-term 1 – Optimistic July 21 – June 22 10% growth (not yet pre-pandemic)July 22 – June 23 5% growth (return to March 20 position) 2 – Normal July 21 – June 22 5% growth (not yet pre-pandemic)July 22 – June 23 5% growth (not yet pre-pandemic)) 3 – Worse July 21 – June 22 No change (not yet pre-pandemic) July 22 – June 23 5% growth (not yet pre-pandemic)Next step: Help clients make a realistic plan for a second wave, and help them improve their resilience as much as possible.Verdict: Until we’re completely out of the woods, businesses should hold onto as much cash as possible.The focus has to be on business resilience planningAlan Hamilton, corporate finance director, Johnston CarmichaelAs lockdown continues to lift, business resilience planning has never been more important. We’re working closely with clients to help them review their operations fully, adapt and take advantage of growth opportunities as the economy starts to recover.Scenario planning will help with the unexpected, for example, what if we have a second wave, what will this mean for your business? Scenario and business planning are crucial in devising a post-lockdown strategy, but also help assess future funding requirements and identify potential opportunities and risks.Digital plays a key role here too, as having access to real-time information through cloud accounting software and associated apps, allows business owners to make informed decisions based on real-time facts.Next step: Run scenarios with clients to assess how a second wave might affect their businesses.Verdict: Businesses should be reviewing their entire operations to gauge how resilient they are.Businesses should build a ‘war chest’ and maximise profit marginsMatthew Thorpe, managing partner of Haines Watts HornchurchWith so much uncertainty around what a second wave will mean for business, planning is challenging, with a second nationwide lockdown being the main fear. The immediate focus is on building reserves to draw on in the event of another lockdown.That means maximising profit margins, tight credit control and well-controlled spending. Having a war chest is the best protection against a second lockdown. The next step is to make sure you aren’t taken by surprise by whatever comes next. Modelling as many scenarios as possible in simple terms is the biggest single area we are investing time with clients.Next step: It’s all about scenario modelling and getting cash in the bank.Verdict: It’s tough to plan for, so businesses must do all they can now to build a buffer in their accounts.Businesses should engage with employees and make sure they can be agileStuart Crook, partner at Wellers AccountantsYou can only plan for what you can see is likely to happen. Businesses need to ask, ‘what lessons can we learn from what’s happened over the last four to five months to ensure the impact of any potential second wave is minimal?’ This includes making sure risk assessments and financial forecasts are up-to-date. Don’t just keep previous financial forecasts and information collated during the previous lockdown on the shelf filed under ‘dealt with it’. These insights and forecasts need to be revisited and recreated to help assess what the new landscape looks like.“From the employee side, we’re suggesting that clients engage with their workforce through surveys and polls to ascertain views and attitudes. We also recommend that they update their working from home policies as these can really ensure businesses continue to stay agile during future crises. Working from home will cut costs for business so it may be about redistributing these costs and funds into areas that generate the most income.Next steps: A combination of careful forecasting and review of working practices.Verdict: Businesses need to learn some fast lessons from the past few months.Businesses need to work out if they need to adapt or evolveSherad Dewedi, managing partner, Shenward Chartered Accountants and Business AdvisorsIt depends on the business. Ultimately, businesses need a clear plan of how to operate during a second lockdown, whether it’s about adaptation or evolution. We’re telling our clients that, if their business model is able to somewhat sustain itself during a second wave, do they have the right plans in place? Have they done break-even analysis to work out the minimum sales they need to survive a second lockdown?If that’s not possible, are they able to evolve? We have clients in manufacturing and they’ve pivoted into manufacturing PPE. They also need to have conversations with suppliers, I think they’d be more amenable now, given that it is a pandemic affecting everyone in some shape or form.Other areas we’re advising them is to approach banks, see if they can get mortgage holidays or a Business Bounce-back Loan, even they don’t have a specific cash requirement now just in case, because once furlough ends in October, businesses will need reserves.Next steps: We’re telling clients to arrange more favourable payment terms now so that it could help with cash flow in the worst-case scenario.Verdict: Businesses need to work out if they can survive with their current business model, or whether they need a new one.Resources Leading digital change and developing your careerTechnology is now mission critical. Gain insights into how analytics and automation can transform your finance team.View Expert panel: Emerging stronger – the new finance functionIndustry experts give their take on how Covid-19 crisis is reshaping the finance function in the digital age.View←123…115116117118119120121…349350351→ Search for: Search Powered by Ajaxy