PSTAP Member News.

As of the end of March 2022, the annual inflation rate over the past 12 months was 8.5%, the highest rate since December 1981, over 40 years ago. Inflation is expected to persist, and businesses and individuals are beginning to feel the impact. They will need to make financial decisions that will preserve their wealth and help them make ends meet. In order to help your clients, and in fact, to retain them when they are making those keep-or-cut decisions, you’ll want to put on the financial advisor hat. 

Many accountants here in Pennsylvania become financial advisors for their clients. Your expertise can help guide them through asking the right questions and advising them about their best options. The final decisions are up to them, but they will find your help invaluable, preserving your relationship with them and possibly garnering referrals to other individuals and companies who are trying to navigate this difficult economy. 

Companies and individuals will have different considerations, but there will be significant areas of cross-over. 

Helping individual clients through inflation

The first step is an in-depth look at current expenses. Have your client list all their expenses, then go through each and ask a few questions:

• Is this a necessary expense?
• If it is a necessary expense, is there some way to lower its cost?
• If it is an unnecessary expense, should it be eliminated entirely right now or decreased? 

Your clients may be surprised at how many little things add up – stopping for a coffee on the way to work, subscriptions to online streaming services, etc. There may be some tough decisions to make for these “luxury” items, but they could save a considerable amount of money. Necessary expenses should be evaluated to see if there are some less expensive alternatives. Encourage them to shop around for the best price. 

The next step is to make a monthly budget, based on current income. You can also help your clients brainstorm other ways to bring in money, from asking for a raise or working overtime, to starting a side business. 

Finally, look at your client’s savings and long-term plans. Was your client planning to buy a car? Now is the time to do it, because it will only get more expensive and interest rates will increase in the near future. In addition, if your client has a significant portion of his or her portfolio in cash or in investments that are likely to lose value in inflation, it’s wise to switch to safer investments or those that outpace inflation, such as real estate, gold, or bitcoin.

Helping your business clients through inflation

Your business clients will have to go through the same introspection as your personal clients, though it will look different. 

First, help your business clients evaluate their long-term goals in order to develop strategies of spending that will keep them on track to reach those goals. 

Next, look closely at all operational costs and business expenses, in thorough detail, with those goals in mind. Evaluate every expense:

• Is this a necessary expense? If so, can it be lowered? Can we find a better price elsewhere?
• What is the expense’s ROI? Is it helping us reach our goals in the most efficient manner, or is there a less expensive alternative?
• Can this source of expense be automated to save us money?
• Can raw materials be purchased elsewhere? Can we negotiate fixed rates for our materials or services in order to protect us against unexpected rate increases?
• Our employees are also being hit by inflation; can we afford to provide better financial packages to retain our most valuable employees? Will we need to downsize to do it?
• What policies need to be established around expenses and approving of expenditures?

 Your business clients should also look at their products and services and evaluate the processes involved in their business:

• What services or products are offering the best return? Which are the most popular? Can we adjust our offerings to focus on those that are both profitable and popular and repackage or eliminate those that are not helping us reach our goals?
• What other service or product can we add to our offerings that will be profitable for us and that our customers want?
• Can a process be streamlined to save us money? Would a purchase of equipment or software bring down its cost?

Finally, your business clients should evaluate their investments and consider ways to hedge against inflation:

• Can we invest in heavy equipment or automation now, before they get more expensive, that will save us money and help us toward our long-term goals?
• Should we move our investments out of cash and volatile funds and redirect them into investments that hold their value or grow in times of inflation? Suggestions include real estate, commodities, money-market mutual funds, and Treasury inflation-protected securities.

Making yourself invaluable

As your clients look at ways to tighten their belts and cut fat, you don’t want to be among the “unnecessary” expenses they cut. Demonstrate your value now, by reaching out to all your clients and offering your services. Create a communication system to keep your name before them and show them that you have the expertise to help them. 

Offer the personal touch because, in these unstable economic times, people are worried and need the emotional support of an expert who can assure them that they have someone who has their back and will help them through it all. Offer the services they need and you’ll keep your practice secure during times of economic insecurity.