Firing Clients, Marketing

Is This the Year You’ll Fire a Few Clients?

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With my husband’s Navy career moving us around the country we’ve changed accounting firms a few times. With his retirement in 2014 and our relocation to Florida we hired a firm we thought we’d stay with for a long time. However, it turned out the firm was too large for our needs. We were a small fish in a big pond – and we only heard from them when our tax information was due. This wasn’t the expectation they set when we met.

2019 was no different. Our tax organizer arrived in early February, but my husband and I had already agreed to hire a new firm. We did our research, solicited references, held initial consultations, and selected our new CPA.

As March 15 approached, I thought for sure I’d get a call from my old firm looking for my corporate tax information. Not a word. They haven’t called about our personal tax information either.

I think we’ve been fired – in the worst way possible.

Why Accountants Need to Fire Clients

Every firm has them, those clients who:

  • Always dispute your invoices
  • Are slow payers
  • Are unwilling to pay for extra services
  • Are less profitable than other clients
  • Do not provide opportunities for you to cross-sell services
  • Have limited growth potential
  • Do not treat you or your staff with respect
  • Lack trust in your abilities or knowledge
  • Withhold information or are untruthful
  • Place you or your firm at risk
  • Fail to comply with providing information or communicating in a timely manner
  • Have not provided you with new business leads
  • Do not enable you to establish or build a niche

In the Intuit/QuickBooks Firm of the Future blog Ron Baker wrote, “Many consultants of firms estimate that the average firm contains between 10 and 40 percent of “F” customers. It is never easy, but it is necessary, to remove these customers from your firm.”

In the latest available research on the topic from CPA Trendlines, 75 percent of survey respondents indicated they’d like to fire a few of their clients and another 14 percent said they’d like to fire some of them. Thirty-two percent had fired a client within the past 12 months and 20 percent within the past 30 days. Only 10 percent had never fired a client.

With a finite amount of time and resources, not to mention the desire for work-life balance, you want to be sure you are investing in your best clients. Perhaps this is the year you’ll fire a few bad ones.

How to Determine the Clients to Fire

An annual evaluation of your client base is valuable not only in determining the clients to fire but to establish or clarify your firm’s vision and strategy. The AICPA Private Companies Practice Section (PCPS) offers a client evaluation tool to PCPS members, including a standard Excel template, that is adaptable for evaluating a client based on pricing, timing, stress, risk level and overall satisfaction.

For those firms who aren’t PCPS members check out this article by Mark Koziel that includes in-depth information about this evaluation tool along with ranking criteria.

The point of the client ranking process is to use agreed-upon criteria to provide real data to help make smart, logical decisions.

If you aren’t interested in using such a comprehensive tool establish your own criteria, such as:

  • Fee growth
  • Realization
  • Timeliness of payments
  • Enjoyment of working with the client
  • Year-end
  • Preparedness

Create the criteria and process that will work for you and your firm.

How to Fire Clients

First, use the results of your client evaluation to determine the relationships that can be saved. For example, set a minimum fee for tax returns. Then, send a letter to each client who falls below this threshold informing them about your fee increase. You’ll be surprised how many clients will pay the increase. Caveat: Only send this letter to those clients who will truly be better clients for you if they paid more.

This process can also be used for other issues. Be direct and tell the client what changes they must make to remain with your firm. Choose your words carefully so you don’t offend them. Then, let the client decide what to do.

Second, determine those clients to fire – or transition to another firm. Split this list into those clients you’ll meet with or call on the phone and those who will receive a letter. Caveat: Be sure to follow up your calls and/or meetings with a letter so all selected clients have your communication in writing.

Here are a few tips for your calls, meetings and/or letters:

  • Explain that you’ll no longer be able to provide services to them. This could be because:
    • You decided to focus on a particular niche.
    • You’re focusing on clients that meet certain criteria.
    • Firm growth has resulted in the need to reduce the number of clients.
    • You’ve noticed a problem with your working relationship and think another firm may be a better fit.
  • Provide a referral to another firm and assurance that you’ll do everything possible to make the transition as painless as possible.
  • Send the letters return receipt requested so you’ll have proof they were sent and received.

Third, consider packaging a group of nonprofitable clients and selling them to another firm.

Whatever you do, don’t ignore your clients like I experienced.

Use a Facilitator

Just like retreat facilitators keep partner groups focused and accountable, a facilitator for your client evaluation process can do the same. Note: The facilitator doesn’t replace the need for firm leadership and commitment to the process.

For example, a client used the PCPS Client Evaluation Tool. I worked with two partners reviewing the ranking criteria, the timetable, and internal communication. Each partner conducted their own client analysis and the group met to review the results. Unsurprisingly, there were very few “D” clients (on an A-B-C-D scale). There was an unwillingness on the part of the partners to admit the weaknesses in their client bases. Without the necessary firm leadership, the process fell apart.

While working with another client we created our own evaluation criteria. I was asked to meet with the partner most resistant to letting go of clients – who ended up firing the most clients of any partner. Evaluating each client logically and providing encouragement did the trick.

Three Final Points

The decision to fire clients is an important, difficult one. Here are three more points to keep in mind.

  1. The time you spend dealing with bad clients can be spent bringing in new, better clients and spending more time with your best clients.
  2. If your client’s behavior is preventing you from providing them with quality service this is a lose-lose situation. It is time to say goodbye.
  3. The most effective way to reduce the number of clients you need to fire is to implement a formal client acceptance process. This will help you make sure you’re bringing on the right clients in the first place.

Is this the year you’ll fire a few clients? I hope it is since firms that regularly fire clients become more profitable, and have happier clients and staff. Who can argue with that?

 

Jean Marie Caragher is president of Capstone Marketing, providing marketing consulting services to CPA firms. Download her free eBook, Client Satisfaction Surveys for Accounting Firms: The Answers to Your Most Frequently Asked Questions. Contact her at 727.210.7306 or jcaragher@capstonemarketing.com.

Originally published at Accounting Today.

 

Capstone Marketing Blog, Firing Clients

Ready … Aim … Fire … a Few Accounting Firm Clients!

The feedback I received from clients and others within the accounting profession was that this past tax season was one of the most challenging tax seasons ever. Now that the dust has cleared – and you’ve hopefully taken a vacation – it’s time to get serious about firing clients.

Bad or “D” clients have an impact on your profits, productivity, and staff retention. These are the clients who want the most attention while paying as little as possible. Typical D Clients:

  • Can’t attract and retain quality staff
  • Have a weak upper management team
  • Demonstrate low commitment to technology
  • Have unreasonable expectations
  • Show little willingness to follow advice
  • Have poor teamwork and commitment
  • Pay late
  • Abuse your people
  • Are poor record keepers
  • Always need their work yesterday
  • Continually put your firm at risk

Your accounting firm – like every accounting firm – has D clients that should be removed from your client list. Here is how to do it.

Evaluate Your Client Base

Develop criteria to identify A-B-C-D clients. Criteria to consider include:

  • Annual revenue
  • Payment history
  • Growth potential
  • Referral history and potential
  • Profitability/realization
  • Job risk/complexity
  • Timing of the work
  • Satisfaction/enjoyment working with the client

A helpful resource for PCPS members is the Client Evaluation Tool, part of the Trusted Advisor Toolbox. Set a deadline for each partner to rate their clients using the agreed upon criteria. Meet as a partner group to review the ratings and determine action steps.

Determine Action Steps

The decision to fire a client is not black and white. All D clients need not necessarily be fired. Figure out how to move them up the ratings ladder. You also want to figure out how to turn C clients into B clients, and B clients into A clients. This can be done by:

  • Changing the scope of the work.
  • Changing the engagement team members.
  • Changing the timing of the work.
  • Raising the fee.

How you communicate with your clients is important. To notify individual or smaller clients about an increase in fee or termination a letter is sufficient. For sample letters click here. Give these clients a few months to hire another firm. It’s helpful for you to identify other accounting firms to recommend.

For most other client communications face-to-face meetings are best. The bottom line is your desire to grow your firm in a smart, focused manner. You need to spend your time on the clients that you can serve in an efficient, profitable way. This requires you to change the client relationship or fire the clients that don’t fit the bill (pun intended).

Final Thoughts:

Identify the champion. As with any firm-wide effort you need the champion – the person who will follow through and make everyone accountable. To evaluate your client base and then rationalize why every client should remain with the firm is a waste of your time.

Get your partners on board. Make your case for why firing clients – or setting minimum fee levels – is important for your firm. At a partner meeting present how the process works and seek their feedback.

Consider implementing this process in stages, e.g., corporate clients, nonprofit clients, individuals. The key is to get started.

Evaluate your client base every year. Firms that regularly fire – or transition out – their D clients improve their profitability, efficiency and morale. This process also gives you more time to spend on your best clients and practice development.

Have you fired any clients recently? What was the impact on your firm? Let me know in the reply box below.