Are your fees high enough?

Let’s start with a truism. No accountants complain that their clients are paying them too much. Conversely there are four main reasons why accountants think their clients are paying too little:

1. They haven’t put the basic fee up to a commercial level;
2. They don’t charge more during their busiest period;
3. They haven’t asked their clients to pay for ‘extras’;
4. Their clients won’t pay higher fees or for ‘extras’ even when asked

If your basic fees are too low then now is the time to consider how to break this to your clients. And you need to decide whether this is necessary as regards all or just some of your clients.

In an uncertain economic climate you would be forgiven for thinking about again holding your fees at the same level as last year. And that may be the right decision for some of your clients. Only you know your clients well enough to know if that will make sense and whether you need to adopt the same position for all of your clients – even the ones who are more of a problem than a pleasure to deal with.

When things are tough the chances are that you will lose some clients – and those that you can’t afford to spend time with are probably most at risk. Either they pay you more or they should move to someone else who can provide the level of help they need at a lower fee. What you want to avoid is hanging onto such clients and then suffering bad debts (which would include building up work in progress that cannot be billed because the client has gone out of business).

I suggest you book a chunk of time in your diary to plan how you will do this and maybe to brainstorm some ideas that will work for your practice and your client base. In my experience whilst there are plenty of issues that are common to many firms, everyone is different so what works well in one firm is not automatically right for another.

I normally suggest that accountants start by focusing on how much they want to earn from their practice. Then you can determine what they will need to do to achieve that ambition. If it’s more than you currently earn you will probably need to consider a mix of increasing the fees paid by  existing clients, increasing the services you provide to existing clients and charging extra for these and generating new fees from new clients. Only you can decide what you want and how you’re going to get it.

When your fees go up you will invariably lose some existing clients but even if you do, overall you are likely to end up with more fees and more time – a win-win situation. And if you also make a reciprocal fee arrangement with a smaller accountant to whom you refer your ‘lower value’ clients you can ensure that everyone is happy.

I’ve addressed related points in many previous blog posts including:

Are you charging enough?

Clients will pay high fees for good advice

What is a fair fee?

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How do you bill for extras over a fixed fee?

We’ve all done it haven’t we? Estimated a fee (or maybe even quoted a fixed fee) for a specific piece of work and then the scope of the work has changed slightly. And then a bit more. Perhaps we’ve delegated the work and have not kept in touch with how much extra time the ‘tweaks’ have involved.

And then we see the WIP reports and realise that the cost over-runs are more than we anticipated and certainly more than the client might have expected.  So what do we do? Swallow the ‘loss’? Promise ourselves to be more on top of things next time? Or do we write a bit off and then approach the client with what we consider to be a reasonable amount to bill them on top of the expected fee.

If we’ve taken the coward’s route we await the dreaded phone call or letter; and if we hear nothing for a few days we relax. We got away with it!  We can bill the extra and we’ll get paid.  Of course we still don’t know the client’s reaction. They may be fuming and bad-mouthing us all over the place. We promised one fee and then charged a higher one. It’s not good PR.

I’ll admit that, in the dim and distant past, I pursued that approach.  I later learned that although a letter/email may be a good way to broach the subject it is critical to proactively follow up with a prompt phone call. Much better than simply to just wait for a reaction.

I recently found myself on the other end of such an arrangement. As a result I am now more convinced than ever before as to how important is that timely follow up call.

If you’ve underestimated a fee and want to increase your prospect of recovering more than the expected amount you MUST take the initiative. Set out your justification and plan your approach to the client. Don’t just send the bill. Don’t even send the bill if you hear nothing back after sending the client a note of the proposed additional fee. Even if it gets paid you cannot assume the client is happy. They may well be looking for a new accountant.

You will only know what your client thinks if you SPEAK to them – and you trust them to tell you the truth!

How do you deal with such situations in practice?

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Apparently this is one of the Top 30 accounting and finance blogs

Last month I received what appears to be a genuine endorsement of all my work to make this blog useful, relevant, commercial and valuable to ambitious accountants.Best Accounting and Finance Blogs 2012

I was initially a tad cynical but this blog really is the fourth in a list of the Top 30 Accounting and Finance Blogs of 2012.

The note I received last week from Tina Ray, editor of BestAccountingSchools.net, said that:

“Of the hundreds of blogs we reviewed, yours was selected as being among the most helpful and offering the sharpest insight.”

If you scroll down you will note that I am now proudly displaying the award badge on the right hand side of this blog.

For the record, Best Accounting Schools’ mission is:

“To help you in your quest to become an Accountant or advance in your career in Accounting. We do this by providing high quality resources about how to get started in this field, along with information about the best accounting schools and degree programs available.”

It is an American focused resource which is ironic as my focus is UK based accountants.

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What are your options if you want to charge more then your fee quote?

We’ve all done it haven’t we. Estimated (or maybe even quoted a fixed) fee for a specific piece of work and then allowed the scope of the work to evolve slightly. And then a bit more. Perhaps we’ve delegated the work and have not kept in touch with how much extra time the ‘tweaks’ have involved.

And then we see the WIP reports and realise that the cost over-runs are more than we anticipated and certainly more than the client might have expected.  So what do we do? Do we:

  1. Bill the full time costs regardless of the quote we gave?
  2. Write-off a bit and then approach the client with what we consider to be a reasonable amount to bill them on top of the expected fee?
  3. Write-off everything over and above the quoted fee? or
  4. Speak to the client to discuss what happened?

Some will say it depends on the circumstances, on the reason the work went over budget, how much of this can be attributed to the change in scope of the work and how well we know the client and can anticipate their reaction.

If we’ve taken the coward’s route we follow options 1 or 2 and then await the dreaded phone call, email, letter or visit. If we hear nothing for a few days we relax. We got away with it!  We can bill the extra and we’ll get paid.

I’ll admit that, in the dim and distant past, I probably pursued that approach.  I later learned that although a letter/email may be a good way to broach the subject it is critical to proactively follow up with a prompt phone call rather than to just wait for a reaction.

More recently I recently found myself on the other end of such an arrangement and am now more convinced than ever before as to how important is that timely follow up call.

If you’ve underestimated a fee and want to increase your prospect of recovering more than the expected amount you MUST take the initiative. Set out your justification and plan your approach to the client. Don’t just send the bill. Don’t even send the bill if you hear nothing back after sending the client a note of the proposed additional fee. Even if it gets paid you cannot assume the client is happy. They may well be looking for a new accountant.

You will only know what your client thinks if you SPEAK to them – and you trust them to tell you the truth!

I welcome your comments and ideas as to how you deal with such situations in practice.

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The January tax return rush is your own fault

Chatting with an accountant recently he told me he was amazed why so many clients leave their tax returns to the last minute.  He told me he chases clients throughout the year. He sends reminders and prompts. He has recently asked around his business networks to clarify why small business owners and investors do this. It became clear that there are typically 3 reasons:

  • They find the collation of their papers boring
  • They have more important things to do
  • It’s not a priority until the filing deadline is looming

My friend was frustrated by these replies but also satisfied. It’s not just his clients and it’s nothing to do with him.  All accountants struggle to cope with the January tax return rush but at least now he knows why.

WHAT ROT!

There is only one reason for the January tax return rush and, I’m sorry to say but it is entirely the accountant’s own fault. I’ve been saying this in talks for years and offering solutions on how to overcome the issue.

Quite simply your clients leave things to the last minute because you let them do so.  Yes you do. And, yes, YOU could change things. There are three main ways to do this:

  1. Reference an earlier deadline and stop drawing your clients’ attention to the 31 January filing deadline. YOUR deadline is (say) 31 October. Treat it seriously and be as forceful around YOUR deadline as you have previously been re HMRC’s deadline.
  2. Establish a stepped fee structure whereby clients have to pay higher fees the later they produce the information to enable you to complete their tax returns. And stick to it.

What do you think the third option is?

Related posts:

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Seth Godin steps into the time vs value billing debate

Seth Godin is renowned for his pithy and thought provoking blog posts and books.  His most recent post is a new (to me) way of looking at the age-old ‘time vs value based’ billing argument:

“Long work is what the lawyer who bills 14 hours a day filling in forms does.

Hard work is what the insightful litigator does when she synthesizes four disparate ideas and comes up with an argument that wins the case–in less than five minutes.

Long work has a storied history. Farmers, hunters, factory workers… Always there was long work required to succeed. For generations, there was a huge benefit that came to those with the stamina and fortitude to do long work.

Hard work is frightening. We shy away from hard work because inherent in hard work is risk. Hard work is hard because you might fail. You can’t fail at long work, you merely show up. You fail at hard work when you don’t make an emotional connection, or when you don’t solve the problem or when you hesitate.

I think it’s worth noting that long work often sets the stage for hard work. If you show up enough and practice enough and learn enough, it’s more likely you will find yourself in a position to do hard work.

It seems, though that no matter how much long work you do, you won’t produce the benefits of hard work unless you are willing to leap.”

You may not record 14 hour billable days. But if you focus on how much billable time you can record on your timesheet each day you are of the same mindset.

I would suggest that Hard work, in this context, is the application of knowledge, skills and experience to solve problems and to provide valuable advice – without the need for detailed research or long advisory letters. I would stress though that it should be genuine and not guess-work or risky half baked ideas that would have benefitted from proper research.

Hard work requires discussion over the value to the client. It also means the adviser has to decide whether the agreed fee will provide sufficient reward. Sufficient to cover not just the time but also to contribute to the build up of knowledge skills and experience which put the adviser in a position to provide the advice. Thinking that all through, having the discussions and accepting the outcome is Hard work.  But it can pay very well as a result.

Do you focus on Long work or do you have a way to get paid a fair fee for doing the Hard work?

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Yellow pages bingo for accountants

I love a blog post written by Paul Simister on his ‘Differentiate your business‘ blog.

He explains that Yellow Pages Bingo is a game for checking that your marketing hasn’t fallen into the trap of being too similar to your competitors. And he then reveals the results of playing the game with accountants in central Birmingham.

Paul’s game shows the high level of similarity when comparing accountants’ adverts in Yellow Pages. He looks at descriptions of firms, services and offers. I suspect the results would be the same across the country and that the content of accountants’ websites are also pretty similar.

Paul’s concludes by answering his own question:

What happens when every supplier looks the same?

The choice comes to either the cheapest or the most convenient.

I agree, but I’m not sure it’s a bad thing as it’s what most people want and those are pretty much the two most important factors determining how they will choose their first accountant. Cost and convenience.

Paul notes that the latest edition of his Yellow Pages has fewer adverts for accountants than previously. I suspect this is due to an awareness that most people now use the  web to find a new accountant. Back in 2009 I wrote a related piece:  Accountants’ adverts are not working any more

And here’s the rub. To be found on the web when someone searches for a new accountant you need to use the same words as everyone else – in so far as visitors may be searching for those terms.  Of course you have the facility to make your website stand out in other ways, beyond the words you use. But that’s a subject for another day although I have previously provided objective advice here on ‘websites for accountants‘.

What do you think about yellow pages bingo for accountants?

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What is ‘Cheap accounting’ all about?

I wonder how many readers of this blog had heard of Elaine Clark before I awarded her the ‘best overnight budget summary‘ last week?

Elaine qualified as a chartered accountant in 1988 and now and runs one of the fastest growing online accountancy practices in the UK. She established it in 2007 and has a number of associates operating their own practices under the same brand name. Indeed Elaine offers a mentoring service for those who want to establish their own practice and benefit from the leads that come from web searches and her related online engagement.

I must admit that I was initially doubtful about the name of her practice: Cheap Accounting, although I do accept that it’s very attractive for online searches. After all, no one googles to find an expensive accountant do they?!

I was always taught that ‘cheap’ went with ‘nasty’. That we should not encourage clients to choose their accountant solely by reference to price – and that a focus on being cheap encourages them to do so.  And then there is the theory that although most clients want accountancy services provided (1) fast, (2) accurate and (3) cheap – they have to choose  just 2 of the 3 .

Having discussed this with Elaine I must admit to being wrong.  I now understand Elaine’s passion and her business model. Her practice offers ‘cheap’ accounting services in that they keep costs down and run an efficient and focused service. They can do this through a reliance on computer-based book-keeping packages and other technology that allows them to operate in a very cost-effective manner.  As explained on her website: “Quality is in no way compromised. CheapAccounting operates to a set of very high service values”.

Inevitably, perhaps, most of Elaine’s clients have straight forward accountancy and taxation needs. Needs that her experienced network of CheapAccounting.co.uk accountants are well capable of addressing. However from time to time there may be a more complex tax issue which requires more specialist advice.

I am delighted to announce that Elaine has chosen my Tax Advice Network to provide tax support when required. We have agreed a working alliance which is clearly promoted on her website.

For obvious reasons I do  not give permission for just anyone to include our logo on their website. Indeed Elaine is the first person to have that authority – beyond the tax adviser members of the Network of course.

I hope that readers are sufficiently intrigued to want to check out the Cheap Accounting website. It’s very different to most accountants’ websites. It’s also popular and successful at drawing in the sort of business that Elaine is targeting. Oh, and it even tells visitors how easy it is to change their accountant. I think we could all learn something from her approach.  Let me know what you think….

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These accountants offer a fixed fee service. Do you?

Let me be clear I’m not saying that everyone should or can do this. Simply that some accountants do it.

I was prompted to write this blog post after engaging with a couple of accountants on twitter. Here are their tweets:

Standing order mandates delivered to the bank. Get the customers paying in advance on fixed fee quotes. That’s the way to do it!

I do the standing order over ten months. They get January and February off. Then we negotiate next year’s fee. People like it.

Any extra work has the fee agreed in advance. Tax planning and tax credits on a value basis adjusted to actual when HMRC agree.

I think the two month post-Christmas payment holiday is a winner. Works for Council Tax!

@James_Hellyer

Every one of my clients pay monthly fixed fees in advance. Nobody ever complains. It should be the norm. It is with Broome.

It helps that we provide a Very Good Service!! backed with money-back guarantee

@BroomeAffinity

During some of my talks I often raise the concept of ‘fixed fees’ as one way in which accountants can reduce the time they spend on the billing process, improve their cashflow and reduce arguments about fees. Those who are implacably against the idea seem to feel that they HAVE to charge clients by reference to their timesheets.

Look. If that works for you, by all means continue. But do recognise that more and more accountants are winning new clients who want to pay a fixed fee for their annual service.  That’s irrelevant of course if your clients are happy, you’re happy and you’re winning new work that pays the fees you feel are fair for the work you’re doing.  The thing is that many accountants, who operate in what we might call ‘the traditional way’, cannot honestly answer ‘yes’ to all 3 of those questions.  What about you?

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