Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘turnaround

Tenon’s clients paying a high price for their failure:

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Tenon’s clients paying a high price for their failure

There continues to be significant and almost weekly reports in the press about both the business issues and reported practices of the UK’s only listed accountancy practice, RSM Tenon.

I have read these with interest, as a former PLC Finance Director and now a partner in an independent firm of accountants and business advisers.  Much of what is being reported in the press now has been known within the accountancy profession for quite a time.  I read it all with both surprise and sympathy, surprise that a public listed firm of accountants can act this way and make so many mistakes in dealing with their own business and the operations of a public company and sympathy for their clients, as it their clients who are paying the increasingly high price for Tenon’s failing business model and practices.

What you learn from being a PLC FD

I worked as a Finance Director of a fragile small public company, which in the end had to be restructured.  When first appointed you do need to learn very quick lessons about the business’ relationship with the market, the stock brokers and the brokers’ analysts.

As well as publishing accounts, every six months, a Plc. also issues summarised forecasts about its anticipated performance in the coming year.  If at any time it believes that the results of the business will waiver by more than 10% it has to announce to the market, the Plc must inform the market again, and these are known as profits warnings.

What people sometimes do not realise is that that these forecasts are scrutinised and questioned by third parties to ensure that they are robust.  As a new FD, I was certainly surprised by the depth of discussion with the analysts at the stock-brokers.  They need to understand your business, your competition, your competitors, the areas you operate, the reasons and assumptions underpinning your projections and they question you accordingly to ensure that they are comfortable to support your business, its accounts and forecasts, in order to support its share price and trading.  The analysts do understand the business that you operate in and do have a good knowledge of your competition and structural issues, so “fooling” them or “being foolish” with them is not an option.

I am not sure whether Tenon have tried to fool the analysts or they just did not understand their own business, either way it is not the way a Plc. is expected to operate and certainly not what is expected from a firm of accountants, who should know better.

Given the recent appointment of CEO by Tenon, maybe they have started to realise this a little late:


Given the importance of ensuring that your accounts are robust and that your forecasts are equally as reliable, growth by acquisition must also ensure that you have accounted for and dealt with your acquisitions appropriately as well.

When a business acquires another business, they assess the assets and liabilities acquired and make appropriate adjustments for losses and other liabilities as well as making provisions for closures, redundancies and other liabilities and costs (and cash requirement) derived from the restructuring and bringing in the new business.

Tenon has grown by organic routes but also by significant acquisitions.  Individual independent firms and offices have been taken into the firm (on a part cash/part shares basis) and these are offices where the partners have not sort to continue their firm’s name with new younger partners but have opted out by selling to a national firm.

Tenon has also made two major acquisitions over the last couple of years:

  • RSM Bentley Jenison
  • Vantis Plc.

Both of these acquisitions have been cited as reasons why Tenon has problems.

Both acquisitions seem not to have been dealt with appropriately, as other businesses would.  Appropriate and accurate evaluation of the assets and liabilities of both businesses does not seem to have been undertaken and worse still; the market has been told that these businesses will add to the profitability of the main business.  Plcs do not act this way and accountants do know better, so why has Tenon done this?  Is it ignorance or is it deliberate?

Given that Tenon may need £20million from shareholders by way of a rights issue, the one thing that they will have to be certain of is their current position and forecasts for the future, if the market is to trust them further.  The have been described by their second biggest shareholder as a “company out of control.”  This is probably why they have chosen to quickly appoint an experienced new chief executive, which in itself is an admission of failure of their current business model.

Desperate for fee income and reported bad practises

All of these “mistakes” have added to the pressures for Tenon to grow and produce profits from their other core business areas, and that means making more money from their existing client base as well as acquiring new clients.

The Times (Saturday 11 February 2012) has reported the whistle blowing of a former Tenon director and head of their Southampton office, citing a number of “bad practices” including prematurely recognising income on cases before they should.  This can mean billing clients before work is completed or reporting income when bills have not been raised, before agreeing these with their clients.

We are also seeing more comments from appointments with potential clients that they have seen fees continually rise from Tenon, with no change in the service delivery.  This is obviously alleged and anecdotal practise of the business, but given the reports now coming to light in the press, there does seem to be fire included within the smoke signals.

Employee Benefit Trusts (EBTs) are ticking time bombs

Tenon has seen significant growth from their specialist tax products areas.  This area of work is not covered by the FSA as a financial product but lies within the area of specialist advisers, legal opinions and an advanced business understanding.

Employee Benefit Trusts (EBTs) is one such area that has been “sold” over the last 10 or so years, but EBTs are failing and fall well within the current anti-avoidance legislation brought in by recent governments.

Hundreds, if not thousands, of EBTs and similar have been introduced and businesses that have them in place, should now have been advised that if they wish to either sell, pass on their business to family members or clear up their tax affairs with HMRC, they must seek to close the EBT and negotiate, agree and settle the tax position, which could be significant with HMRC.  Businesses with EBTs are now considered to be un-saleable until the EBT has been closed and settled with HMRC.

Tenon has introduced many EBTs and similar strategies and their clients are now finding out that they have a significant problem to deal with.  Costs, time and fees in dealing with these issues with HMRC are significant both to the clients and to Tenon.  Engagement letters are likely to be very clear that it was all the clients decision to accept and deal with the risk of these strategies, but their clients will expect to get support, and we are talking about significant support amounting to £millions of fees and costs.  Given the pressures of Tenon to generate cash and profits and given that they are also likely to need a cash injection by way of rights issue, there is significant doubt whether Tenon and their clients will be able to agree on who is responsible for the costs of rectifying these mistakes.

As an independent firm with partners and senior staff from top 10 and top 5 firms, we have to make it clear that whilst we have the same experience, offer the same service and access to finance, tax and growth strategies, we do not have to face these pressures or issues.  We do not have the same high cost and overhead structures; we do not have the pressure to generate high fees to meet regional or national targets set by expensive head offices and we do not have to make high returns to shareholders; in doing that we do not have to sell high sell high risk “products” without offering the future support to our clients.

We are offering to help and support businesses with EBTs to help to rectify the position with HMRC and for SME businesses, we are also able to offer and provide audit, accounts and tax compliance service at a fraction of the cost of either Tenon or other national firms.  All of this is provided by the same experienced levels of staff as Tenon and other national firms.  For some of us, including myself, who have been Finance Directors to SMEs and Plcs as well, we can bring those skills and experiences to our clients as well.  As outlined earlier, I am astonished at the behaviour and actions of Tenon as a Plc.  I am not sure, at all if a Plc. model is appropriate for a firm of accountants, but on top of that, there are other significant business decisions and practices that Tenon have undertaken which many other businesses as well as accountants would not have done.

Profits for the first half year; significant losses the second half; profits warnings; black holes, restatement of previous accounts; £20million equity requirements; sacked board of directors; errors in acquisitions; bad practices with clients; over-billing; attempts to bring forward income; settlements in court; desperation for fees and cash; massive selling of failed tax strategies; disgruntled staff and disgruntled clients; and all this from a firm that was awarded National Firm of the Year in the 2011 British Accountancy Awards, …… Amazing or just The Emperors New Clothes!

We expect there to be continued issues and changes with Tenon, including whether they will return to private ownership.  We are, however, seeing continued discontent with both clients and staff and we are obviously keen to support and help both.

Steven Mugglestone BA FCA
Finance Director Services


Written by Steven Mugglestone

February 16, 2012 at 6:43 pm