Cowardly CPA

[TaxBird]

This is not exactly a tax question but I thought, if I might, I would like to tap the brain trust here and get some advice.

Last year I got a church as a new review client. My engagement letter includes an approximate quote with a caveat that I would charge extra if significant time was necessary.

Of course, the quote turned out to be low (significantly) but I thought, for the sake of goodwill, if nothing else, I wouldn't charge for the overage that first year. Besides, I'm fairly new to doing churches so I figured some of that time was learning curve/lack of familiarity. This year, I'm half way through and I'm already over budget. I need to submit for a fee change but need to shore up my academy award acting skills so that I don't come off as wildly uncomfortable as I am.

Any of you have techniques that you use to talk yourself into not being uncomfortable about this stuff?

Any tips on how best to approach this would be greatly appreciated.

[BOB W]

Question?

Was there increased activity this year over last year? If so, you should have no problem increasing your fee.

For what it is worth, I just bill extra when it is needed. I never ask a client if it is OK. "Wow, you really put me to work this year with all your activity, here's my actual bill based of time devoted this year."

In your case, you made the classic mistake last year by not mentioning nor charging "Something" extra, just to let them know your estimated fee is not locked in stone.

Watch your body langauge, you have to believe you earned every penny deep down in your soul. DON'T BE SHY about the bill. It is called "method acting", but I am never acting when I bill a client.

[TaxBird]

Was there increased activity this year over last year? If so, you should have no problem increasing your fee.

For what it is worth, I just bill extra when it is needed. I never ask a client if it is OK. "Wow, you really put me to work this year with all your activity, here's my actual bill based of time devoted this year."

In your case, you made the classic mistake last year by not mentioning nor charging "Something" extra, just to let them know your estimated fee is not locked in stone.

Watch your body langauge, you have to believe you earned every penny deep down in your soul. DON'T BE SHY about the bill. It is called "method acting", but I am never acting when I bill a client.

Thanks Bob!

This activity is actually almost the same as the first year. To explain, I was engaged in Nov'05 to complete their 2004 year end. That was completed in Feb '06. So for all of 2005 they were operating the same as they were in 2004. Still, they should have spent the interim time (between Feb & July shoring up the 2005 books based on the 2004 adjustments).

I think I made many mistakes, nonetheless. Aside from the one you mention, I need a better way to quote my work overall. I want to be able to provide an estimate but not get locked into it. So I add the thing about charging more for significant overages. The problem exacerbates when, in the engagement letter I also tell them I will discuss with them "If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incurr the additional costs". So I kinda trapped myself right there into having to discuss it. (The proverbial 'fine pickle'). Still, I don't think it's a bad thing, per se. Just uncomfortable.

In the future, I plan to leave the quote out the engagement letter (rookie mistake I now realize) entirely and just use 'time will be billed at my normal hourly rates'. I should still give the estimate and the caveat verbally, if asked. Don't you think? Mine usually ask for a quote up front. How do you handle prospects?

But for now, I need to get over the fear that it somehow reflects poorly on me that I was this far off on a quote. Pretty sure that's behind why I didn't approach them with it last year as well (and we see how well *that* worked).

Come to think of it, though, in our closing meeting for 2004 (which was held in Feb '06), I did mention that we had hit their books really hard in anticipation of cleaner books going forward but that I wouldn't charge them for that. (Hey! Maybe I *do* have an opening?!)

Now I just need a way to weave that into the conversation.

Hmmm. Any tips?

Thanks again!

[BOB W]

Quotes are.....

.... always difficult. You never know what you will run into once you get started. I give quotes with a verbal opening> "I really don't know what to charge you until the work is completed. There are many different issues with your type of business(whatever). But I should be within $1,000- $2,000 range."

When I make a mistate on a quote sometimes I eat it, but not for long. This client needs to be increased regularly and by larger $ to make up for low billing. And, I let the client know that I am helping them get past the initial setup period. And, to expect regular increases in the future plus extra time billing.

In the end, you can't have a client that is not profitable. Both you and the client have to be winners when dealing with each other. As time goes on and you get to the point where you are breezing through their work, you will still be charging the higher fee, won't you> you better.

Get them organized so you can breeze through their work and charge them extra when they don't do what you ask.

[TaxBird]

.... always difficult. You never know what you will run into once you get started. I give quotes with an verbal opening> "I really don't know what to charge you until the work is completed. There are many different issues with your type of business(whatever). But I should be within $1,000- $2,000 range."

When I make a mistate on a quote sometimes I eat it, but not for long. This client needs to be increased regularly and by larger $ to make up for low billing. And, I let the client know that I am helping them get past the initial setup period. And, to expect regular increases in the future plus extra time billing.

In the end, you can't have a client that is not profitable. Both you and the client have to be winners when dealing with each other. As time goes on and you get to the point where you are breezing through their work, you will still be charging the higher fee, won't you> you better.

Get them organized so you can breeze through their work and charge them extra when they don't do what you ask.

This is very excellent advice Bob. Thank you.

BTW, it's so great to have a forum like this.

[BOB W]

Your Welcome

I've been doing this work for 35 years and have made many mistakes, but have learned that there is no sense in having a client that I'm not making enough to cover my income and their portion of my business expenses.

With that in the back of my mind, I then approach my clients as a profit center. They are no good to me if they don't see it my way. Usually they give in and see it my way. You have to be willing to gamble by being willing to lose a client if they don't agree with you. But then, I never ask them to agree with me, just pay me. All of my clients have a good working relationship with me inspite of what I said above. And you will too.

[OldJack]

When I make a mistate on a quote sometimes I eat it, but not for long. This client needs to be increased regularly and by larger $ to make up for low billing. And, I let the client know that I am helping them get past the initial setup period. And, to expect regular increases in the future plus extra time billing.

I agree with Bob, sometimes it is better to eat it. I find that clients like to have your fee the same year after year with only a small increase regardless of how much time you spend at their office. They like to call you and think it is not costing them anything. So... make sure your fee is high enough that you can occasionally eat some time without concern and you and the client will both be happy.

Bill by what it is "worth" to the client (and yourself) and it will be more rewarding than exact minutes of the clock. I never show time worked on my billings. If my client complains about my bill I mark it down and in most cases the client will not be my client long as I don't need clients that are unhappy with my service or will not pay enough to make me happy.

[BOB W]

Backing down?

I think I have back down once in my 35 years from an issued bill. I had a reason for billing the amount I did and they need to pay that amount. If they don't like my bill they can find someone else.

Experience has shown me that the cheaper your billing the more pesty your clients will be. It's called "lack of respect".

[TaxBird]

I've been doing this work for 35 years and have made many mistakes, but have learned that there is no sense in having a client that you are not making enough to cover my income and their portion of my business expenses.

With that in the back of my mind, I then approach my clients as a profit center. They are no good to me if they don't see it my way. Usually they give in and see it my way. You have to be willing to gamble by being willing to lose a client if they don't agree with you. But then, I never ask them to agree with me, just pay me. All of my clients have a good working relationship with me inspite of what I said above. And you will too.

I know you're right. I've been on my own for three years now. I'm very good at the work...it's just the administrative stuff that I'm still shakey on. I just needed some words of wisdom to shore myself up for 'the performance'. Yours is great advice. Any other tidbits you would care to share are always welcome.

In the meantime, now armed with your words of wisdom, I will saunter confidently into my meeting Friday and get that fee increase.

[jainen]

they will understand

Be sure to tell them the ink in your ballpoint is made from petroleum, and naturally with costs rising... I'm sure they will understand.

[TaxBird]

I agree with Bob, sometimes it is better to eat it. I find that clients like to have your fee the same year after year with only a small increase regardless of how much time you spend at their office. They like to call you and think it is not costing them anything. So... make sure your fee is high enough that you can occasionally eat some time without concern and you and the client will both be happy.

Bill by what it is "worth" to the client (and yourself) and it will be more rewarding than exact minutes of the clock. I never show time worked on my billings. If my client complains about my bill I mark it down and in most cases the client will not be my client long as I don't need clients that are unhappy with my service or will not pay enough to make me happy.

How can you tell what it's worth to them, at least the first time?

And, in your experience, how would you define 'small' percentage-wise? I'm wondering what is the biggest 'small' I can get away with.

[BOB W]

3 years, wow...

.... it takes at least 5 years to gain enough confidence to stand up to your convictions, what you are worth. I ate my share during those first five years. Confidence will come when you are getting strong referals from existing client.

When I started I gave alot away just to build up my core of clients. Building your "Core" is very important, that's the way you build a business. One of the problems in doing it the way I did was the slow process of upgrading my fee structure. It took another five years. But in the meantime I had a nice "core" and my upgraded pricing structure weeded out the price hunters. During this process my total fee income was still going up with the same total clients ( new coming in replacing those going out).

[Joe Btfsplk]

Initial pricing reduction for 'learning time'

A suggestion in the case of new clients with situations that take some learning time:
Bill the total hours and give them a 'new client discount' for the learning time.

But if the work is the same the next year, it should take less time. If it doesn't, then it wasn't the learning time--it was all the extra work that you expected not to be there next year. In such cases you might give a "new client discount" the first year, showing the normal billing and the amount of the discount. You could then explain that if they cleaned up their act, it would be less the next year.

I got stuck a couple of years ago by billing low with the expectation that the client would begin to do better accounting as time went on. The accounting got no better and the company finally went broke.

[OldJack]

I agree with what Bob just said.

You of all people should know what a job is "worth" to you and you should bill at least that amount regardless of the actual time needed. Of course you have to build that "core" client base as Bob said.

As an example every year I consider what its worth for me to do a simple tax return (1120,1065,1040, etc). I then will not bill less than that even if it only takes a few minutes to do the job. Last year I would not do a simple one page 1040 tax return for less than $200. I would not do a 1120 for less than $500. It was not really a problem as most of my tax returns are worth much more. Worth must also consider and include the risk you take when signing your name to anything.

[TaxBird]

.... it takes at least 5 years to gain enough confidence to stand up to your convictions, what you are worth. I ate my share during those first five years. Confidence will come when you are getting strong referals from existing client.

When I started I gave alot away just to build up my core of clients. Building your "Core" is very important, that's the way you build a business. One of the problems in doing it the way I did was the slow process of upgrading my fee structure. It took another five years. But in the meantime I had a nice "core" and my upgrading pricing structure weeded out the price hunters. During this process my total fee income was still going up with the same total clients ( new coming in replacing those going out).

Yes, I guess you could say, I'm starting to feel my oats. I've eaten enough time and under billed enough to the point of sickness. The under-billing is not intentional just par for the course I guess. And I have been doing the fee increases. But I'm begining to wonder if I'm doing it often enough (I do it once a year) or in large enough increments (nobody seems to mind - ever).

How did you decide who would be part of your core? So far, I'm referral only (especially after the 'Jesus' incident) and try to accept only those clients who appear interesting and able to pay. So far, I've been right on the money - and I haven't lost anyone (yet). Beyond that, I've not been able to narrow it any further than that.

But I will say, I do see improvement. About a month ago, I had an all out shouting match with one of my bigger clients (he's a yeller) which ended in me telling him, "Any lower and I can't afford you!". After which he stormed out. I thought I was doomed. (For the record, the guy's a ba-zillionaire trying to tell me he couldn't afford my puny fees. Meanwhile, I'm trying to exist on a tenth of a percentage of what this guy makes).

Anyway, that afternoon I had my $$ - I wasn't doomed afterall! Apparently he's one of those that like to cut up from time to time. So, I figure as long as he pays me, we can spar on occasion.

I find it's very helpful to hear from people who've been where you're going. Your story makes me feel that maybe I'm not so far off track. Thanks and keep em comin!