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Switching to Fixed Fees as a practice - tales from the frontline

I've recently read Life without Timesheets by Hugh Williams which is a brilliant book and has

definitely opened my eyes about the way forward for our practice which currently uses timesheet

billing, yes I know how foolish that will be to most people.  The book gives excellent examples

of sample letters to use which we will be using also to move towards upfront fixed fees.  We are planning

to move within the next 2 months, to write to all our clients about our intention to move to fixed fees and

to then propose fixed fees for compliance work such as tax returns, accounts, payroll.

I know it will be a massive change in our practice but it has to be done, no other business would send you a bill

after they had done the work(well none that I can think of right now) so why should ours?  The case is so overwhelming

in favour of fixed upfront pricing that in my opinion it's a bit of a no brainer to change to this method.

I was just wondering if anyone had any experience of making this move, any recommendations/pitfalls

to bear in mind?  Any client feedback they had received for example what to do about existing debtors?

Thanks for any replies.

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02nd Mar 2012 19:25

Good effort

It's the right thing to do.  I am a sole trader, been going 2.5 years, 120 clients and over 70% of my income is on standing order.  Lifetime bad debts in the 2.5 years = zero.

Pitfalls:

1.  I issue annual standing order schedules for VAT.  I review these every 2 months and update ones which will be over a year old in the next 2 months.

2.  Suppose accounts are imminent?  What do you do then - for example a new client started recently, £2k per year.  The main part of his deal was limited company accounts which I knocked out within 5 weeks of the letter of engagement - a quick handover from the ex-accountant helped.

Under normal billing I'd have gone in with £1,300 plus VAT.  At that point he'd paid £200 plus VAT.  What I do here is refer to an adjustment invoice within the letter of engagement.  I have a little cash flow spreadsheet model which shows the client that the adjustment invoice makes us quits over the first year compared to "normal billing".

3.  With slow pay I have an unusual method.  I don't mention Courts or anything.  I just point out the work I've done and ask the client to call me.  I tell them that if they want to pay me nothing for the work that is fine.  But that I won't be doing any more work for them if they don't agree to pay something, and that if they hire a new accountant I'm duty bound to mention the non-payment to them.  So far even clients who'd not answered 6 or 7 texts / phone messages / e-mails have then got in touch and offered some sort of payment plan.

4.  I've had about 6 "bounced" standing orders.  One I believe was by intention, he ended up paying up and I resigned for various reasons including the bounce.  The other 5 were either temporary overdrafts or simple bank errors.

5.  I went for standing orders as my mantra is "You are the MD, I am the FD".  So taking control of the payment route is not consistent with that.  I've not had a problem and am halfway through a 10% price rise, clients are amending the SOs fine.  Initially banks are often rubbish at setting them up but once in place they run fine.

 

 

 

 

 

 

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02nd Mar 2012 21:16

I can think of some

 

"no other business would send you a bill

after they had done the work(well none that I can think of right now) so why should ours?  The case is so overwhelming"

Car mechanics, solicitors?

I think it's down to whether you know reasonably precisely what needs to be done. I don't think there's a problem with fixed fees as long as the client know what they need to do before you work on the data provided, eg. bank reconciliations.

I'm not sure I understand why fixed fees should mean there's no timesheets. A business would still want to know what a job cost even if they had agreed a fee in advance. If they are making a loss they would want to change things.

Some accountants say they hate completing timesheets or they think their staff would lie. I think they have other issues they need to deal with.

 

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I can't imagine NOT issuing fixed fees

I'm new to having my own practice so please excuse any naivety on my part.  But I know as a consumer that I would be extremely wary of getting into any form of arrangement where I didn't know how much I would be paying in advance, so I wouldn't expect my clients to either.  I know that if my bills from suppliers were an unknown quantity, when the bill was more than expected - well it would be the best way to lose me as a customer.

Also, if I can't estimate and price a job that's my problem - not my clients'.  And if I do underestimate how much work is involved that simply means I have to find ways to be more efficient.  As an aside this can be very beneficial to my business - sometimes I have to find better ways of doing things to ensure a respectable recovery.  These lessons learned can then be applied across the board.  Without this we'd still be using leather bound cash books and multi coloured biros!!

But this doesn't mean that time recording can be ignored - far from it.  I need to know which clients I don't make enough margin on - so I know where I need to improve things and/or which clients need a fee increase.  In our game we have two resources - our time and our staff's time and we need to make sure we maximise the return from those resources.  How can this be done if it is not measured?

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03rd Mar 2012 08:19

2 things

Letters of Engagement:

As well as spelling out what is covered within the fixed fee, it's important to spell out exactly what assumptions have been made.  So typical statements I include are:

"No sources of rental property income."

"No capital asset disposals above £10,000 in value."

"No more than 2,000 transactions in the business bank account" (if the book-keeping is within the fee).

"No complex tax issues such as cross-border issues."

Time-booking:

Yes I think you still do it!  I do it for year 1 and year 2 of a new client, it is critical in my view.  For example, it was clear in the early days I was not charging enough for clients who had furnished holiday lets, so I have changed my pricing for those.

Then there are variations - items not covered by the standing orders which you issue a Contract Variation letter for and charge by invoice.  I think you need to monitor this stuff separately as certain variations recur with different clients, for example help with loan applications.

 

Thanks (1)
03rd Mar 2012 08:53

Thanks - have just ordered the Book!

There are lots of us out here who still have a problem in setting fixed fees up front that actually cover time later spent. So thank you Amalonio for this posting!

Common sense tells me I need to ask more questions of the client before quoting in order to find out exactly what state his paperwork will be in when I get it. As to whether this reveals all I need to know is another matter...

 

 

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03rd Mar 2012 09:44

In complete agreement with the fixed fee regime, our practice engages clients with a set amount based on requirements I.e. accounts, payroll, VAT etc with a stipulation that additional fees will be invoiced for 'out of office' work such as cash flow and business plans for bank loans, tax enquiries, legal issues etc. With regular reviews I think it's the ideal method for the small practice.

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Quote for everything

My first introduction into life without time sheets was Ron Baker's excellent Burying the Billable Hour, which the ACCA released as a booklet in 2001 LINK.  This started us billing fixed fees for standard compliance work (eg accounts & tax returns).  Several years later I also read Hugh's "Life without..." and not only was the book a great guide but he was prepared to discuss many of the principles by phone & email, a lovely man.

It did however have several gaps, for example I don't remember any process for "what happens if the client doesn't keep their end of the bargain" eg getting their info in late.

Anyway, after approaching a handful of representative clients with our plans we went live in April 2008 and began quoting and billing upfront for everything anticipated to happen in the next year (to 31 March) ie all the routine compliance stuff plus, most importantly, all contact in the year, ie they can contact us at any time about anything within the fixed fee.

The way to look at it is that you are there to support them 12 months a year so we charge like our IT support company does.

My keenest advice would be to not keep time sheets at all, ie not for "managing" time on jobs or billing clients.  Set out proper standardised planning and review procedures on every job to identify whether it's likely to go to plan or not and if at any time you identify that the client's not come up to scratch with what they are supposed to do, then stop work and quote them to put it right or get them to do the work.  Obviously if the job goes wrong due to internal errors that too will be identified.

We allow clients to pay us in 10 monthly instalments April - January, although many settle up front.  Be careful with personal clients if you issue one invoice and offer more than 4 instalments, you will fall foul of consumer credit law unless you are regulated by say ACCA, where you will be covered by their group licence.

Loads more, feel free to PM me if there are any areas you are unsure about.

Good Luck - you will not regret it, you and the clients will wonder why you didn't do it years ago.

 

 

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06th Mar 2012 09:03

I guess I am in the "middle"

I quote up fronty for all work - either fixed fee or a variable saying - it will be up to £1,000 and no more.

I then do keep timesheets (20+ years of habit) and when I come to bill I compare timesheets to the quote, on average I come in at my standard hourly rate, if I am under great, if I am over I make a note and try and recover next year.

I only have a few clients on fixed monthly SO, most clients I invoice at the end of the work as I base my relationship on trust. and touchwood, have not been let down yet.

The best bit to me about not being fixed is the fact the client likes the "maximum quote" - usually lower than their previous accountant and in most cases I manage to bill less than the quoted maximum and believe me that makes for a very happy client!

I am sure I am different to others but it works for me!

 

 

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A good point Ding Dong

Having used time & timeless methods (and various combinations in between) it's worth making the point that there is no right & wrong and I doubt I'd be far better or worse off than I am at the moment, in financial terms, had I never looked at dropping timesheets (that I had kept for 35 years!).  The benefit for me in not having to keep timesheets is in having more time to plan & assess what I do, plus the clients really appreciate it.

As DD says it's what is right for you AND clients but that shouldn't blinker people from realising that, just because that's the way we've always done it, doesn't mean there's not a better way.  I've told the story many times but when I was training I asked the senior partner why he didn't keep timesheets and he said that he still regarded them as a modern fad, best suited to a factory, and that people would eventually go back to billing for what they did rather than the time it took them, shame he died before he could say "told you so".

 

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Fixed fees from day 1

My practice is relatively new and I quote 'fixed' fees for all work and I bill monthly for around 80-90% of my clients.

Timesheets? Haven't done one of those since 1995.

On engagement I set out in detail the work that will be covered and specifically state that the quote is based on the current size of business, number of transactions/staff etc and that if there is a significant increase in the size of the business and its operations there may have to be a price increase.

For the smaller sole traders and straight forward SATR's I bill on completion and wait until I've been paid before I file returns and send out final accounts.

All of my clients want to know how much it will cost and all those who pay monthly really appreciate it. I appreciate it too as it improves cash flow, removes the uncertainty over 'will I get paid (on time)', makes me more comfortable with the 'unlimited e-mail and telephone support offer' and keeps me better informed as to how a client's business is doing - this in turn often leads to more work from the client - cash flow projections, business plans, bookkeeping.

Where I take a new client on and the filing deadline is close I'll usually agree to either spread the fee over a shorter period, say 4 months and start monthly standing orders for the following year after that.

Something that I haven't done yet but will consider where a client doesn't want to pay monthly (not a good sign) is to offer a discount for monthly payments.

And finally It also makes credit control and cash flow projections far easier and less time consuming.

 

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Suggestion

When we first switched to upfront quoting and billing we tied the quote in to the client providing all of the information we needed, for accounts and tax returns, within a set time limit (3 months).  Thereafter we set a sliding scale of extra fees based on a % of the annual fee, eg in months 4/5, 6/7 etc.

This has evolved and we now stipulate, for 31 March year ends and personal tax returns, that if all (or a significant part) of the information arrives after month 7 (31 October) we re-quote and won't do the work unless it can be fitted in without disruption to other planned work and will not complete any of it in January.  This may actually mean we don't complete it till after 31 March.

In reality, given that we use our discretion and that some clients will be given a few extra weeks, these terms will only effect a very small minority but it keeps us in control and with the majority of clients wanting pre-year end tax & accounts planning in January-March the last thing we should be doing is helping those who can't be bothered.

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avatar
06th Mar 2012 21:46

Life without timesheets is not a very good book
I have to say, that following reading your post I decided to buy a copy of life without timesheets.

I have to say the book is not good enough in my opinion.

Firstly, for £20 (the RRP) I would expect more detail and more depth than purely tax return service pricing.

Secondly, there is no explanation of value pricing, and how to apply this to your services.

Laughably, Hugh talks about ditching timesheets and value billing, and then in two of his examples for non-tax return work, he works the fee out based on the time it will potentially take multiplied by his hourly rate!!! And then, to cap it all off, discounts his hourly rate by 20% which I can't understand.

If you have never had any dealings with value pricing and doing things according to the New Approach then you might find this useful. I, unfortunately, didn't.

Sorry for the rant - just very disappointed that it fell short of my expectations.

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Time sheets or crystal ball?

As previous posts have pointed out its fine to provide fixed price quotes as long as the person you are quoting realises there will be extra costs if they don't keep to their part of the bargin: records presented by a certain deadline, minimum standard of record keeping agreed (in writing), and so on.

As far as I am aware there are no stats that evidence any correlation between the profitability of firms that invoice based on a time sheet or a fixed price. My guess is that either process could produce more or less profits for practitioner.

However measuring profitability requires that time passes, at least with timesheets you have some idea of recovery prior to billing.

Personally I would endorse a dual system, time sheets and fixed price quotes, for at least a couple of years to check your numbers.

My only other recommendation is to use a consistent basis for your quotes. Whether its a spreadsheet or commercial software. Added Value Network have a pricing solution in their product range and the only other provider is my company. Its offering, Open Price, provides interesting benchmark feature.

 

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19th Mar 2012 12:24

Time records

We work on fixed fees, but charge for anything outside the agreement.

We keep time-sheets, but the time element is secondary and is just a rough approximation. We call them time-sheets, but in reality they are records of the services we have provided to a specific client during the year and how simple, or complicated, the task was.

To those of you who don't record time, do you still record the dates, staff member, etc. of all tasks completed for a client throughout the year?

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Bob & Shirley

Bob - I have the benefit of years using time based billing, fixed quotes + time based billing and now just quotes and, for me, timesheets are, ironically, a waste of time.  As already pointed out above, I agree that, financially, I'm not sure whether I would have been better or worse off sticking with them but in admin and, in particular, client relationship terms, I'm streets ahead of where I was 5 years ago.

You are also right that clients have to understand what is expected of them (and when) and like anyone, they value this knowledge & certainty.  In four years of quoting for everything I have never had a problem pointing out that a particular issue or "new" thing will have to be charged as extra whereas, in the old days, we'd regularly get queries or raised eyebrows from clients when our, up to then, mysterious bill, hit their inbox.

Shirley - as I say above we have substituted timesheets with comprehensive, and client relevant, planning and review sheets (created within Iris) so that we can assess the client's records, anticipate problems or benefits and then review the work after it's finished to help plan for next year and feedback to the client.  This is all controlled by Iris practice management where individuals are allocated job stages from sending checklists, chasing the records, assessing and then doing the job to reviewing & completion, all within pre-set timescales.

Whether a job is going to go well or not will be highlighted before or as it happens rather than after its finished and yes this will mean a job is likely to take less or more time than it did last year but so what, if you know the reason the hours are irrelevant and, just because it's taken longer, can sometimes be a positive thing.

 

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19th Mar 2012 16:00

@Paul

You have given me something to think about.

We have task lists, but these are specific to the tasks and are not really tailored for the individual clients. I can see the advantages of this, particularly in reference to receiving/checking the client records at the start, so I will review our procedures and see if we can improve them.

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Shirley

Hi Shirley - Iris produces pretty much the same set of task stages for each job (ie accounts prep or personal tax return) however we have made them comprehensive enough to cover all eventualities and in many simple cases we may only need say 10 key stages out of 20, so each year we are presented with the 20 for each client and we tailor them by marking some NA or perhaps changing the due dates/person that are pre-set by the system.

On each stage you can leave notes or generate a standard document and the latter produces the planning schedule, review schedule, letter of rep, AML forms, resolutions etc with fields pre-filled from the client data base.  These are in Word format, so again can be tailored.

As well as the compliance work (including VAT returns & Annual Returns) we also set up Iris Jobs for our annual quoting/billing procedures and this, in particular, has been worth its weight.

Sometimes seems that all of this is overkill but even after decades of compliance I will miss things, especially when in a rush, and so, long term, these are a great help.

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20th Mar 2012 09:01

Thanks Paul

Looking at your more detailed description, Iris isn't too different to our own setup. Our check (task) lists are based on 'worst case' and then tasks irrelevant to the client are marked N/A.

We can add new tasks, and enter notes relating to each task or the overall job, and we have templates for the LoR, AML, etc. but these are not automatically produced and they need some manual entry, too. 

There is always scope for improvement. :)

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