Will you get paid more for iXBRL accounts?

Quick question on 12 July 2014: Please add a note below or email me as to how and why you found this post. It baffles me that this 4 year old piece is routinely one of the most popular on my blog, with hundreds of views every week. Why would that be?
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This is a follow up from one of last week’s blog posts. Here I’m looking more at the extra time and effort involved in complying with the new iXBRL efiling obligations.

Clients will only agree to paying additional fees if they perceive that additional work is being done and that this benefits them in some way.

Tagging company accounts for the taxman, using iXBRL tags, is going to be obligatory from 2011.

It seems that plenty of accountants have yet to determine exactly what they will be doing to ensure that their clients’ accounts are  compliant. I’m not sure how late you can realistically leave it before you find out what is going to be involved here. You’ll want to do this both to ensure that you are able to comply with the new obligations AND to manage your clients’ expectations.

Most importantly is the need, from a commercial perspective, to ensure that you only devote extra time and effort to tagging each client company’s accounts etc if you are sure you will be paid for doing so.  Asking for additional fees only after the event is unlikely to be very remunerative! Is it ever?

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Who bears the cost of new efiling rules?

As software evolves to meet new legislative requirements so accountants assume this will be built into the price they pay for their software.

There is little prospect of accountants asking clients to pay extra – or of them securing additional fees if they did ask!

Equally, accountants will not willingly pay extra for updates of their software if these simply enable them to ensure that clients comply with their legal obligations. Thus suppliers will have a hard job on their hands to persuade existing accountancy users to pay extra.

In practice the only community who can seriously be expected to bear the development costs, if not the developers themselves, will have to be new users; – perhaps those who migrate away from competitors , as well as those who are computerising for the first time.  This is unusual as normally it is the pioneers who pay a premium for the privilege of being the pioneers and at the forefront of new developments. Have newer users in recent years been paying as much as those pioneers for their accounting and tax software? I guess not. So can those who have been putting off their move to online filing be expected to pay more so that the software developers can recoup their investment? Or will the only losers be the shareholders and owners of the developers? They have no choice but to invest in the new developments.

I said earlier that few accountants will successfully persuade clients to pay a surcharge to cover the costs of introducing new software. Some firms tried that in 1997 when self assessment was introduced. In most cases clients rebelled and accountants had to absorb the cost of introducing new software. This time round it is likely to be the software suppliers who bear the costs. Sorry guys!

What do you think?

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You have to use different bait to attract bigger fish

A sole practitioner accountant recently asked how could he attract the ‘bigger fish’?
In effect he wanted to know how he could start to attract and win clients who would be prepared to pay bigger fees. He said he wants to more than double his average fee – moving from around £600 upto £2,000.

Here’s my initial reply:

What services do the ‘bigger fish’ look for and that you can provide? Are you looking to attract prospects with more complex affairs or those with more messy records?

What services would anyone want and be prepared to pay £2k for that you have the interest and ability to provide.

When you are networking are your stories and examples about small clients or big clients?

Do the messages on your website and marketing material represent the right sort of bait for the work you want to attract?

Like this post? You can now obtain my 10,000 word ebook containing loads more marketing insights, short-cuts, tips and advice aimed specifically at accountants. You can buy the book or download a summary for free here>>>

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“Why we’re going out to tender for new auditors”

Chatting with a business contact this morning he told me why he feels compelled to go out to tender for new auditors. Bear in mind that he is a VERY experienced FD and has been in post at this multi-million pound business for 4 years. The auditors in question are a top ten firm and have been in post for 5 years.

I share below the points my friend made:

Our current auditors said they’d staff the audit with local [north London] staff; in fact the manager and staff are based in Birmingham.

We don’t know what they’re doing half the time. They ask for random invoices and have told me lies.

They do interim work during the final visit and disrupt us at our busiest time of year.

My finance team are close to resigning due to the attitude of the audit staff.

My number 2, who has been in post for 8 years, cannot understand why the auditors are so uncommunicative and disruptive in their approach.

We agreed timetables for respective actions to avoid being charged for cost overruns. When the auditors miss their deadlines and cause delays they then report US to the audit partner if our next stage is behind the original schedule.

We know they underbid for the work originally and have been constantly trying to push the fees up each year, which we have resisted as the group structure has been simplified.  We agreed a small excess for cost-overruns last year. There won’t be any this year.

I know the auditors have to be independent but ultimately we need to work together to ensure the financial accounts are right. This firm (other than the partner) takes a more ‘them and us’ approach than any firm I’ve ever worked with before.

We’ll go out to tender again and we’ll have to let them re-tender but there’s almost no prospect of them being reappointed.

If I didn’t know better I might think that the FD has something to hide and that the auditors are just doing their job properly and objectively. And maybe that’s how some audit partners excuse themselves when they lose a re-tender – as is bound to happen here.

I understand that over the years there have been NO major audit issues or disagreements re figures or presentational adjustments. The audit partner has been objective, professional and helpful. He’s been firm when he needed to be – but this has not caused any serious disagreements or issues.

Lessons?

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Lessons for accountants from….dentists

A number of people have mentioned in conversation recently how much it costs to go to the dentist.  In each case their dentists are getting close to retirement and their longstanding patients are stating to look for someone new. The patients are shocked at how much more they have to pay their new dentist.

Their automatic assumption is that their old dentist was out of touch with what his contemporaries were charging. They feel that they’ve been fortunate to get away with paying very low fees for so long. Now their dentists are retiring they have no option but to pay commercial rates.  They specifically do not want to try to find another older out of touch dentist. They assume that a new dentist will be more uptodate, use newer procedures and be around for some time into the future.

None of the people who have shared these stories with me have considered telling their old dentist that he’s been undercharging them.

Is there a lesson here for accountants I wonder? Especially those who have kept their fees unreasonably low for many years? When you retire your clients will find that they cannot secure the same quality of service without paying more commercial fees.  In the mean time the only person to lose out is you.

There may be other lessons we can learn from the analogy. When you choose a new dentist what do you look for? Do you think about their professional qualifications? Do you make assumptions about their competence, experience and ability? Would it matter if they promise a personal service? (What other type is there?).   What REALLY matters to you when you are recommended or choose a new dentist? What REALLY matters to prospective clients when they are recommended or choose you as their accountant?

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5 ways that Accountants can make more profits

There are essentially just five basic approaches to making more profits as an accountant in practice:

  1. Increase your charges – for doing the same work you have always done. This requires you to increase the perceived value of what you do
  2. Speed up collection of your fees and so reduce your capital requirements and interest costs
  3. Reduce the time you spend providing your services whilst keeping your fees the same as before. This allows you to take on more (profitable) work.
  4. Provide more value and charge more than you did before NB: this is not the same as simply ‘doing more work’ for existing clients
  5. Provide additional services and charge for these. Avoid preconceptions about what clients will pay.

There are also 2 supplementary things you can do:

  • Get existing (good) clients to introduce new prospects just like them
  • Sack the duff D-list clients who get in the way

You will appreciate that my focus here is on generating more profits rather than on increasing your top line, for example through adding new clients secured through advertising, marketing and networking.

In my talks on this subject I tend to focus on the first 5 points above although I also cover the 2 supplementary issues and some of the less costly methods of securing new clients and turnover. In so doing I share dozens of practical, commercial and easy to implement ideas that I know are being applied by other smaller practitioners.

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Easyjet pricing by accountants

Anyone who has heard me speak recently will recall my encouragement to review the way in which fees are set. I’ve also posted numerous previous items on this subject.  A summary and link to them all is included in this one: Negotiating fees when times are tough.

I’ve just had a call from an accountant who was telling me how successfully he has found what he calls the ‘Easyjet approach to pricing’ his services.

Simply stated he quotes a low fee for completing a tax return in April or May and the fee increases as the year progresses.  The fee charged for preparing tax returns in Dcemeber or January is more then five times the fee he quoted for doing the work in April or May.

He doesn’t feel himself constrained by time costs. After all his time and that of his staff are largely fixed costs.  Business clients pay a fee by reference to their turnover – the bigger the client grows the bigger the fee he charges. he spends no time analysing time sheets, worrying about write-offs or under-recoveries.  The accountant’s focus is on the aggregate fees he needs to generate to cover all his costs and make a profit. Anything over and above that is pure profit.

Now I know that such systems are not as simple to operate in practice as they are to summarise in a telephone conversation (or on a blog). But the point is that traditional time costing for recurring accounting services is not going to help ambitious accountants to win new clients in a recession.

What other examples do you have of innovative approaches to pricing by accountants?

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Negotiating fees when times are tough

I’ve written a number of previous posts on related subjects and thought it would be useful to provide a one stop link to each of them:

I think there are 4 different scenarios where it may be necessary to negotiate fees for your services:

  1. The annual fees you charge to existing clients;
  2. The additional fees you charge to existing clients for ad-hoc and advisory work;
  3. The fees and terms you quote to prospective and new clients for recurring compliance work; and
  4. The fees and terms you quote to prospective and new clients for one-off and advisory work

Existing clients

I’m a great advocate of regular monthly billing (or payments on account). Given the unprecedented financial turmoil in the economy and business world accountants must look after their own. You could never afford to risk non-payment of your annual fees. Now there is a greater risk than ever before that clients may not be able to pay those bills.

Accountants who consider themselves to be business advisers should practice what they preach (or what they should be preaching).  Now is the time to review your billing practices so as to reduce the risk to your firm/practice.

Previous posts that address this issue:

–  Detailed fee quotes and bills for professional work

Don’t just increase your fees, vary them

Setting fee rates – using costs incurred or value provided?

“You can charge more if you have SEX with your clients”

Fixed fees

Prospective and new clients

All new clients should be obliged to agree to make monthly payments on account. You need to establish systems to facilitate this and to issue the monthly invoices for VAT purposes.  There is no good reason for allowing new clients (who owe you no loyalty and whom you barely know) to pay you long after the work has been completed.

Where you are not providing recurring compliance services you would be justified in seeking a payment on account before starting work for a new client. I always do so when providing consultancy and mentoring services. My standard approach these days is 50% payable before I start work. The balance is then payable about 3/4 of the way through the contract.  If payment is late, I will stop work. I’d be a hypocrite if I didn’t insist on strictly commercial terms as that’s often one of the subjects on which I am advising the firm that has engaged me.

Previous posts that address this issue:

Clients will pay high fees for good advice

Timesheets and value pricing professional services

What is a fair fee?

Estimated fee ranges

No reference to fees and plenty of free advice time?

Are you charging enough?

Should you put your fee rates on your website?

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Setting fee rates – using costs incurred or value provided?

Pricing the work that we do for clients is never easy.  When I worked for larger firms many years ago fees were determined by reference to ‘costs on the clock’ – ie: the aggregate of staff and partner time costs as measured by timesheets.  Charge out rates were commonly set at about three times the related salary costs. The rough rule of thumb being one-third salary, one-third overhead and one-third ‘profit’.  A more modern formula perhaps being one-half, one quarter, one quarter respectively.

I don’t want to get into the whole ‘trashing the timesheet‘ and value pricing debate here. I would like though to share a point I recently contributed to an online forum.  It will be especially relevant if you are a sole practitioner and thinking about your pricing policy.

Sole practitioner A works from home and uses a pay as you go telephone answering service so has few costs to cover. Sole practitioner B works from offices and with secretarial support so has more costs to cover. They provide the same service. The client perceives no difference. Indeed sole practitioner B may previously have been working from home just like sole practitioner A.

Why shouldn’t A and B charge the same fees? If A charges less because he/she is based at home, what happens when the decision is made to move to an office? Cost base goes up. But clients perceive no difference in service so wouldn’t want to pay more.

Answer? Fees should be set by reference to the value provided to client as perceived by the client. Practitioners will aim to keep the costs of servicing clients to a minimum but those costs are rarely relevant to the fees charged.

I used to work in large firms with varying charge out rates for different grades of staff. If a job could be done by a junior member of staff but they were unavailable and a manager did it instead the client should not be asked to pay more – unless they perceive they have benefited – ie: received more value than they would have done if the junior person had done the work. This rarely happens in practice.

Does this make sense to you?  How do you determine your fees?

Like this post? You can now obtain my ebook containing loads more insights, short-cuts, tips and advice aimed specifically at accountants who want to STANDOUT and become more successful. You can buy the book or download a summary for free here>>>

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The value of detailed fee quotes and bills for professional work

It’s been a while since my last blog post on the subject of billing and fees. What has inspired me to return to the subject? Well, I’ve just had my car serviced and I was impressed with the sensible way that the garage both managed my expectations and the way they prepared their fee notes. I think there are lessons here for all ambitious professionals.

Having booked the car in for a service and MOT I received a phone call from the garage to advise me that the car needed a fair amount of additional work doing. This didn’t really surprise me as the car is 15 years old!

The garage owner ran me through the list of things that would be required and estimated the aggregate cost could be as high as £1,000 plus VAT. I asked for a firm quote which he then gave me the next day. The service would be £205, the MOT £50 and the extra work including labour and parts together would be £740. Together with VAT this would take the total cost to £1,164.43.

When I collected the car I received two invoices. One for the service and MOT. The other for all of the additional items and work. The total came to the same figure as I had already been quoted.

When I complimented the garage owner on the way the extra charges had been communicated to me and shown on a separate bill he told me why they do things that way:

1 – They always try to over-estimate what the extra costs will be so that customers get a pleasant surprise that the actual cost is less then the estimate;

2 – They always breakdown their estimates to distinguish the key elements BUT they always end a conversation by referring to the aggregate charge as they know that customers only focus on the last figure they heard. In my case that would have been £740 rather than £1,164.43.

3 – They always show the extra costs on a separate invoice so that customers do not get confused as to the charges for regular services etc. In this case I know that the basic charge is nearer £200 then £1,100 which is important if I was considering getting comparative fee quotes for similar work.

I think that many ambitious professionals could adapt these excellent practices to good effect. How would that work in your office for example?

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How to quickly lose your newest clients

Some years ago I read an article that highlights six things that happen all too often when anyone focuses their energy on trying to win new clients at the expense of managing the relationship with newly won clients.

The author explained how easy it is to fall into each of these six traps:

  1. Once you sign the deal, disappear.
  2. Show a consistent lack of respect for your client inside your own firm.
  3. Hide the other ways you can help – hey, it’s ‘my’ client.
  4. Keep to the tried and true approaches.
  5. Don’t ever, ever check to see how you are doing.
  6. Make your invoices as confusing and indecipherable as possible.

To this list I’d be inclined to add: Bill whatever is on the WIP ledger without checking back to see how this compares with the fee quotes you gave when you won the client.

I invite further contributions and suggestions in comments you can add to this blog.

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Timesheets and value pricing professional services

Taxation2 is a bi-weekly careers magazine aimed at those professionals working in a tax environment.  The lead article in the current issue concerns timesheets and the importance of these in the tax departments of most professional firms.  The article contains various practical tips.

I have copied below the penultimate paragraphs and added some clarification in square brackets:

“This brings us to the subject of ‘value pricing’.  Mark Lee is an advocate of this method of charging [in some cases], which he considers to be a more sophisticated method in that time rates vary according to the type of work, not to the person who does it. What value does the work have to the client?

Mark points out that although, via timesheets, accountants are selling time; this is not what clients want to buy. [They want solutions to their problems.] They are buying a service and he asks what other goods or services would one buy without knowing how much it was going to cost you?

Mark wrote the forward to Hugh Williams’ recently published book, Life without timesheets, which advocates the benefits of value pricing and fixed fees.

For the record: I entirely accept that timesheets have their place and that there are plenty of situations where fixed fees cannot be quoted in advance due to a lack of clarity as to the scope of the work – eg: resolving a tax investigation, litigation and other services where the work will involve dealing with a third party whose approach cannot be foreseen. In most other cases however an experienced professional adviser should be able to quote a fee and then stick to it.  It’s the way of the future although some advocates of value based billing for professional services have been saying that for many years! I don’t expect a sea-change anytime soon.

 

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Fixed fees

I was recently discussing fixed fees with a forward thinking accountancy firm.

I asked them how ‘fixed’ were the fixed fees that they advertise? They confirmed that once they give a fixed fee quote that they will never seek to bill more than that.

All of which is what I was hoping they would say. But I then asked the crunch question. What happens if the fee is insufficient to cover all of the time charges that are recorded on your time sheets? They admitted that some partners are better at accepting a ‘write-off’ than others. They recognise there is an internal training issue ere, and they are trying hard to deal with it.

The point is this:If the aggregate WIP is greater than the fee that can be billed, someone normally wants to know why, and often tries to ensure that a bigger bill is sent to the client. This is particularly true when fees for an additional service have not been agreed in advance

Where the excess WIP is written off and not billed to the client, the firm will need to ensure that client service does not suffer. The firm may effectively discourage anybody working for that client to spend less time looking after them in the future than they have done in the past. The objective being to have a lower ‘write-off’ of WIP next time round.

Thus the level of client service falls and the level of the client’s satisfaction with the accountant’s service also falls. Within a short period of time the client is bad mouthing the accountant and looking to move elsewhere. A situation to be avoided I would suggest.

My advice would be to ensure that everyone needs to agree how the firm will operate its fixed fees policy, any caveats that need to be given to the clients, how to learn and share the lessons when write-offs arise and how to avoid client service levels falling such that the firm gets bad-mouthed by an unhappy client.

Many firms do operate such policies and it’s my view that such firms will win an increasing amount of new client business. They are satisfying a demand and (currently) such an approach makes them stand out as a better choice than old fashioned firms.

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