Clients okay in tough times, now struggling in the recovery

Accountants are saying that clients who looked okay in 2009 are struggling this year and client cash flow is still an issue, according to the BNZ Confidence Survey.

Industry comments submitted by survey respondents resonated around how clients are faring so far this year with a chartered accountant saying "clients who looked okay last year are really feeling the squeeze this year, so the recovery hype is not being matched by client experience at the coalface".

Apparently more financial distress is being seen again after the second half of last year improved.

BNZ economist Tony Alexander says this could be because cash reserves were used up last year.

"With the economy recovering, those that did okay in the tough times could have burnt up their capital or cash reserves and may have over-ordered in getting too optimistic about the upturn," he says.

Director of Nairn Fisher Don Stewart says he believes clients in this situation have depleted all their reserves, but not in anticipation of the recovery.

"People used their reserves as much as they could rather than investing in more stock and resources until they ran out because they were worried the recession may have gone for longer.

"Now it will take a while for that stock to build up again."

In other comments, it appears that clients are sticking to basic financials at the moment and apart from compliance work, everyone seems to be sitting tight.

"We must keep focusing on marketing to stimulate interest. Clients are not doing anything extra, just basic financials and tax returns.

"There was a 22% drop in turnover last year and I'm hoping to recoup some of that this year," says one respondent.

Another continuing concern resonated around nasty cash flow surprises.

"Across all sectors at present the immediate concern is cash flow management," says a respondent.

Alexander believes cash flow issues arise from money not being as readily available as assumed with the difficult credit environment.

Stewart says cash flow is still extremely tight and most people have to closely watch any money owing to them.

"Cash flow is generally very tight after the Christmas and holiday period - that's been made worse by the economic situation."

Other apparent themes in the survey were that clients have been slow to pay, businesses reluctant to expand and a lot of caution still detected.

Overall the first confidence survey for 2010 found 37% of respondents expect the economy will improve over the coming year which is a decline from 43% in the last survey undertaken in December, however this still leaves sentiment in a  positive setting.

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