Monday, February 15, 2010

Can Business Development Help Me Maintain My Fee Level In Today’s Business Climate?

There’s a lot of talk about fees in the blogosphere, with the primary questions being, “Can I raise fees? Keep fees where they are? Reduce my fees?”

Most accountants are experiencing significant downward fee pressure from clients. This pressure can be quite direct, e.g. “Brenda, my business is down and cash is tight. I can’t pay these fees. We’ve got to work something out,” or it can be indirect, i.e. the client either slow pays, doesn’t pay, or sends partial payments. In the latter instance the ball is typically in your court to contact the client and see what can be done. When that conversation occurs, the odds are they will ask for some form of relief.

Or, you may simply take the initiative and write down the invoice before you send it. Here’s a strategy you might consider when considering a write down: As noted in a post last year, I had been told by some accountants that they obtained the best results when making a write down if they clearly showed on the invoice that they were doing so. It is appropriate for the client to see what the amount should have been because from a service provider standpoint you always want the client to understand the reality of how much effort it takes to do their work. Several clients use the phrase, “professional courtesy” as a way to label the amount written down, e.g. the invoice gross billing is $6,500, then subtracts ($1,500) as a professional courtesy, and nets the amount due as $5,000.

By doing this you retain the ability to defend a future “increase” in fees by pulling out the prior invoice and showing the client that you discounted the amount due because you were, for example, aware of the client’s cash and margin problems and you value their business and elected to give them some relief. If necessary, you explain that this clearly implies that you were not offering a permanent, go-forward reduced fee structure.

No one I’m talking with has raised fees across the board for 2010. From that I would state the obvious and recommend you stand pat. I wouldn’t reduce fees because it is so difficult to raise them when the business climate recovers. Using the write down process retains your fee structure while at the same time provides you the opportunity to give selective relief to individual clients.

Now, because this is a business development blog, I want to pitch a way you CAN raise fees. To explain, if you are doing “regular” 1040 and small to medium business returns and compliance work, you are to some extent engaged in a commodity activity. Most of your competitors also provide these services. Your clients know this and everyone is aware there is a community standard range of how much you can charge for that work.

However, when you provide consulting, advice or engage in project work the standard is considerably grayer. If you don’t already do so, please consider scheduling look-ahead planning meetings with (at least) your important clients. And don’t limit your discussion to just the business stuff. Instead, ALWAYS ask about life issues the client may have. For example, if the client is in their 50s or 60s you inquire about their desires about retirement timing, or their thoughts about disposition of their business, etc.

All manner of opportunities can arise from these discussions. Project work such as cash projections, what-if scenarios, coordinating with attorneys re estate planning, etc. are all possibilities. Or, the client may inquire, “Victoria, I’d like to explore how I can acquire one of my competitors. Obviously, there’s the price, but what’s the best way to structure payment of the price? How do we allocate value of, say, good will, inventory and so forth? Does the transaction’s timing have any effect upon my tax exposure?” Obviously, this discussion can result in both project work and consulting/advice. To my way of thinking, these are premium services. This is you operating at your highest professional level. My belief is that by developing these options and solutions you are providing maximum value to your client. You should charge accordingly.

In fact, every accountant I presently work with charges a higher hourly rate (when compared to everyday work) for consulting, advice and project work. Take a look at the hourly rates of local attorneys. While you probably won’t be able to get the same level, their rates do provide a reference point. Specific locations will vary, but as one example, in San Francisco, my clients employ a two-tier structure that pegs their rates $50 - $100 more per hour more for these premium services.

I believe that even in today’s recession you will find clients who not only value the expertise you bring to the table, but will pay your invoice and consider it money well spent.

Note: there are two relevant earlier blogs that address fees: See Pressure To Lower Fees, Parts 1 and 2, dated 7/30/09 and 8/09/09 respectively.

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