What is your practice's hourly rate?

What is your practice's hourly rate?

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What is your practice's hourly rate? (a solicitor not in a posh area told me y'day £200 p/h). How does it work for you? And how do you get round the problem of offering lower rate services like payroll, bookkeeping etc and premium rate services like tax planning, research etc? Thanks. 

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By sparkler
31st May 2012 09:13

I run a very small practice working part time around my family commitments.  I only charge fixed fees, on the basis that my clients prefer to know how much I am going to charge them (all the limited companies pay by standing order quarterly, and the other clients are invoiced on completion of their accounts, tax return etc).  Also I often have to fit work in around other things, so I like not having to clock-watch while I am working on a particular client in order to charge them an exact amount of time worked.  Fixed fees work well for me.

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Replying to Jonathan@Aiteo:
By [email protected]
07th Jun 2012 08:00

Fixed fees

sparkler wrote:

I run a very small practice working part time around my family commitments.  I only charge fixed fees, on the basis that my clients prefer to know how much I am going to charge them (all the limited companies pay by standing order quarterly, and the other clients are invoiced on completion of their accounts, tax return etc).  Also I often have to fit work in around other things, so I like not having to clock-watch while I am working on a particular client in order to charge them an exact amount of time worked.  Fixed fees work well for me.

 

I also do the same after years of being employed and charging clients by the quarter of an hour. By clocking watching and filling in time sheets and then time records it only adds more to a client's bill, which in these hard financial times means you most probably would be losing clients.

 

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By akramco
31st May 2012 09:29

Fixed Fees
I would have thought that most accountancy firms charge a fixed fees for the work they carry out.

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By User deleted
31st May 2012 09:40

Problem?

And how do you get round the problem of offering lower rate services like payroll, bookkeeping etc and premium rate services like tax planning, research etc?

Where's the problem? My compliance fees are fixed, based on estimated completion times and relevant charge rates. Ad hoc fees are fixed, based on a combination of relevant charge rates and value to client.

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By ChrisScullard
31st May 2012 09:45

I charge fixed fees for all the work I do, but when working out the fixed fee I will estimate how many hours for each 'level' of staff would be requried.  On top of that certain services incur a generic fee (unless there is a reason to increase this).

For example, a bog standard sole trader who turns up with a fairly organised box of invoices, but not much more.  Most of the work is sorting invoices/receipts and basic bookkeeping which would be performed by junior staff (if I had any!!).  I would estimate how many hours work are involved and apply my hourly rate for that level of staff.  The same for reconciling the accounts, preparing the final accounts and tax return, etc.

I do this to make sure I'm not taking on jobs at fees that would cripple me if I was (as I hope to be soon) employing staff to do the work.  In short, this gives me a minimum that I am prepared to do the job for.

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Replying to Gav46:
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By LMP
13th Jun 2012 11:06

Location

 

 Hello Chris,

 Where abouts are you based please ?

Thanks

lmp

 

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By ShirleyM
31st May 2012 09:55

Like Chris Scullard

We use fixed fees, but we have an 'internal' hourly rate for each person, and these are used to do rough calculations at the year end, before quoting the client for the next year, to ensure we are getting a reasonable profit.

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Mark Lee headshot 2023
By Mark Lee
31st May 2012 10:04

When i was in practice

All staff and partners had hourly rates but it always struck me as odd that the same rate was charged regardless of whether the work done necessitated that level of expertise. In theory the more experienced and expert members of the team worked faster - but clearly this isn't true of all areas of work, especially the more administrative elements of tasks.

If I was in practice again I wouldn't want to go back to the old way of charging for my time as that's not what clients want and it's not fair on them or on the accountant. (A theme explored many times on Accountingweb over the years).  

Maybe you're asking about an average rate for the practice? For budgeting and cashflow projection purposes. 

Then you would need to consider how many productive billable hours you and your colleagues would be able to work across a year. If you're well established with a full client list of profitable and enjoyable work, maybe it's as high as 1,000 hours per person on average. Asume you want to TURNOVER £400k, then you might think of your billable hours as worth an average of £200 each (assuming there are 2 of you).

 

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Teignmouth
By Paul Scholes
31st May 2012 11:35

And me

Mark - in the old days you got around the oddity of same rate regardless of work by looking at the WIP at the end of the year and applying the accounting formula "wip £250 let's call it £350". you are right, it was always a nonsence but accountants are creatures of habit.

It is refreshing to see so many in favour of kicking the habit, the responses would have been so different even a couple of years ago, but as old habits die hard it would be nice to see people breaking the link with time completely because, unless the client has given you naff or late information, the time it takes you to do the job is not really what the client is buying, it's the end result and the client's perception of what it's worth.

As an indication of this I heard that the salaried bookkeeper of one of our clients was going on maternity leave for a year and offered to fill in.  She was being paid £14K pa but, because she also did some admin, I quoted £12.5K and they jumped at it.

I had to pay my own admin/bookkeeper a couple of days overtime a month to do the work but it was easy stuff and we actually improved how the work was done and the year end accounts took half the effort plus (and this is what can make the lower end work so valuable) it brought us much closer to the client and has lead to thousands of pounds of other work.

Had a fresh client approached me for the same work I doubt I'd have been able to justify more than £5K-£6K pa.  The diference in the two prices is in the value the client puts on the work and not the time, salaries or overheads of the accountant.

So to answer the question, with such diverse work it really is a lot easier to start at the client end and assess how much they need the work. Some clients may not be willing to pay the equivalant of say £20ph for bookkeeping or payroll work whereas others are fine with £80ph, similarly client A is OK to pay me £600 for their annual accounts and all other contact whereas a similar client B thinks £1,000 for the same work is cheap.

 

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By dbowleracca
31st May 2012 19:19

Fixed fees but time is recorded
We use fixed fees for almost all work, but as we have 15 team members and previously billed based on time, still keep timesheets.

It's largely to measure chargeable time, and profitability of each client - but rarely used to gauge the fee.

We used to have one client around 7 years ago, that insisted on one of our senior team members handling bookkeeping etc for them and they paid us £48 an hour for every hour spent. Some of this was more technical work, which warranted the higher rate, and some wasn't. But they were happy and so were we which goes to show that the perception of value varies from client to client.

If you are new to practice and don't have staff, don't get involved with timesheets - fixed prices on the basis of value all the way!

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By David Winch
06th Jun 2012 11:42

Wow! How Refreshing!

Everybody advocating the abandonment of hourly rates and charging fixed fees based on value instead.  There is hope for the world!

Or is it just the fixed fee chargers who feel motivated enough to comment? ;-)

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Replying to FirstTab:
By tracybbs
07th Jun 2012 21:50

Still reading the posts

David Winch wrote:

Everybody advocating the abandonment of hourly rates and charging fixed fees based on value instead.  There is hope for the world!

Or is it just the fixed fee chargers who feel motivated enough to comment? ;-)

but just wanted to say that i charge an hourly rate at present for most of the work i do, and i'm now seriously considering changing to fixed price.  I think it will be fairer for all, the client knows exactly how much it will cost and for me, I can charge more for work that doesn't necessarily take loads of time but does require a bit more in the way of brain power!

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By andy.partridge
06th Jun 2012 12:27

Fixed fees but with strings

There is the occasional one-off piece of work that is better charged on a time basis. It's not sensible to quote a fixed fee because, ahem, how long is a piece of string? Any such time a client doesn't like the idea of being charged on a time basis, they are welcome not to buy from me, but I haven't encountered any problems so far..

I agree that clients might not like to purchase on the basis of time expended for recurring work. However, accountants should not kid themselves that time is not a relevant factor even if it's not used in the billing process. Time is a scarce resource. It is what limits the accountant from completing more work.

With that in mind, I would suggest that it is not very clever for most accountants, and in particular the more inexperienced ones, to be unaware of their actual and target hourly rates. If you were advising a client it's the kind of information you might expect them to have about their business, so why should accountants be exempt?

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By JDBENJAMIN
06th Jun 2012 12:37

Hours matter!

It is an old song that self-styled modernisers sing about how you should charge by value rather than by hours. However, it ignores the effect of competition. You can't charge extra for higher perceived value for the same number of hours, as eventually you will be undercut by a rival making a normal level of profit. I charge fixed annual fees, but I log my time and cost it at a notional £50 per hour. I review the annual quoted fee every now and then to average a recovery at this rate. If I failed to reduce the fee when I have big over-recoveries, I would surely lose some clients to cheaper competition.

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By User deleted
06th Jun 2012 13:26

Fixed fees

I work on fixed fees but my starting point is the number of hours I think it will take multiplied by the hourly rate that I want to achieve. Then I move the figure up or down depending on whether I think it will look too low or too high to the client. But I won't drop the fee that much unless it's a particularly nice client or I know I'm going to make more elsewhere (quite happy to raise it!). And I do keep track of my hours so I know whether a job is 'profitable' and to help future quoting.  

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By David Winch
06th Jun 2012 13:34

I beg to differ with JDBENJAMIN

The actual number of hours you spend with your nose to a particular grindstone are of no consequence as long as you can complete the work to an acceptable standard within the timescale expected by the client.

Even if you have helped the client come to their own conclusion as to the value of the work you propose doing, and set your fee as a small fraction of this value whilst still ensuring it is highly profitable for you to do the work, I agree competitors can still undercut your price.

If the client believes they can derive the same or more value from your rival, and that belief is well founded, they can go elsewhere.  This is business.  But the ability of both other parties to make these choices has nothing to do with whether the price is time- or value-based.

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By Steve Holloway
06th Jun 2012 14:05

Our AWEB survey said ......

that amongst sole practitioners the average notional (if not expressly charged) rate was £50.00 per hour.

I also use fixed rates and to be honest find the link to work done becoming less tangible as years go by. The biggest clients with the best systems generally give the best return for my unit of time as that is where their expectation lies. More impoverished clients can afford less and often see my service as an additional tax on their self-employment ... hence returning a lower unit return. 

In summary, being successful (in my humble view) is not about measuring your time but rather managing your client base!

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By North East Accountant
07th Jun 2012 08:21

What about sometimes never ending jobs?

I would love to know how the fixed fee advocates deal with jobs where it is impossible to quantify at the outset the length, time spent,costs to be incurred.

For example, an HMRC compliance check, Sale/Purchase of a business/company, dealing with insurance company on loss of profit claim etc.

 

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Teignmouth
By Paul Scholes
07th Jun 2012 09:24

In stages

NEA - I can't really think of a piece of work that can't be broken down into stages and certainly, where stage 2 may depend on what's done in stage 1, this is the most realistic way of approaching the quoting process.

Sometimes it does come down to what appears to be a time issue, eg last year where I anticipated that a visit from HMRC on an IR35 status check would take all day, I quoted the client a day rate for that bit.  But even then it doesn't mean you have to fix your day rate, so that one cost that client £800 whereas a day rate to attend a routine directors meeting, for another client, may only have been £600.  As with all non-time based pricing it's based on the work and client in front of you, ie the important bits and not your ability to stay interested in something for X units of time.

You are right though, there is still an element of uncertainty and so, either you are a traditional accountant (apologies to any who feel they are) or you are someone who relishes a bit of risk...."he who dares Rodney" and plucks a figure out the air and punches the air when the client says "that's great".

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By ChrisScullard
07th Jun 2012 12:02

In my short time in practice I've had few jobs that have taken far longer than I estimated.  Sure there are overs and unders in the estimated time but these tend to net out.  Ultimately, if something ends up taking longer than  I expected at the outset then the onus is on me to find a more efficient way of doing the work.  Alternatively the client needs to be persuaded to do a bit more themselves so I have to do less.

I agree that time should be monitored to ensure that a decent recovery is made.  As a sole practioner this is less of an issue at the moment.  However when I start employing people I need to be damn sure that if I'm paying a bookkeeper, a part qual and a qualified to do a job for a client then the fixed fee I've quoted generates an acceptable level of profit.  I fully intend to implement time recording when I have staff.  This is as an internal management control though.

 

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By petersaxton
07th Jun 2012 12:40

Time is money

I will tell a client what I expect to charge and if the client has done what was agreed I won't charge more than that. If extra work is needed to get the data as agreed then I ask the client whether they want to do it or they want me to charge more. Sometimes clients ask for all sorts of advice. If it only takes a few minutes to answer I don't charge - even if the client would be happy to pay £100 for the answer. If it takes say 30 minutes to answer I will charge for the time. Most clients accept this. One or two have complained and we usually reach an agreement but not always. If they seem unreasonable I would ask them to find another accountant. I don't think there's a right or wrong answer about time, fixed fees or a combination. I don't think it takes long to record time. If it takes more than a minute a day per fee earning you can't be doing it sensibly. If accountants advise clients to record costs to understand profitability it seems strange that they don't record their own costs. Even a sole practitioner should be wanting to know how much he earns an hour in the medium term.

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By Eddystone
07th Jun 2012 13:34

Time recording

Well, it might only take a minute to record the daily time, but then later you have to allocate it to the various clients for each member of staff and do the maths, etc.

Moi, I gave up time recording about 14 years ago !  Never get asked to quote fees for existing clients, but agree it's difficult when being phoned up and asked to quote by potential clients as there's so little to go on.  Often clients think fees are just turnover based, but there are so many other factors such as wages, VAT reg or not, hp agreements, how many bank & card a/cs, etc. which can all make quite a difference.

Some accountants can pull a fast one, too - when asked to quote for the accounts that's exactly what they do, and don't mention the bill for the tax returns.

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By petersaxton
07th Jun 2012 14:14

Software

"Well, it might only take a minute to record the daily time, but then later you have to allocate it to the various clients for each member of staff and do the maths, etc."

I use Digita Time & Fees. They have a calendar similar to Outlooks and on it you indicate the time. The programme adds up the hours and the rates and compares it to the invoices. You have a lot of reports so you can easily check profitability in a few seconds.

"agree it's difficult when being phoned up and asked to quote by potential clients as there's so little to go on.  Often clients think fees are just turnover based, but there are so many other factors such as wages, VAT reg or not, hp agreements, how many bank & card a/cs, etc. which can all make quite a difference."

I say what I charge other similar clients but I also say I would have to meet and discuss what they want to do and what they want me to do before giving them an indication of the fee. Some are only looking for the cheapest fees and don't come back. Others are happy to arrange a meeting and discuss fees then.

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Teignmouth
By Paul Scholes
07th Jun 2012 14:26

understanding profitability

Peter - not sure I follow the last bit of your "Time is Money" posting; I (and I hope most of us) record our costs and, like other businesses, my profit is fees less these costs and we are fortunate to have a lot more certaintity than most over what our fees & costs are likely to be over the year ahead.

So where does time come into it?  I can understand an argument over this with Dr Who where, presumably, he can keep going back and perhaps prepare 10 sets of accounts in the hour it took me to prepare 1, thus (unless he draws 10 salaries) increasing his profits but for most of us, time is not variable.

Time is not money (cost or income). Much like with the air we breath god must be kicking him/herself for having missed that trick.

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By petersaxton
07th Jun 2012 14:39

Not God or Dr Who - just plain old common sense

Time is a limited resource that we should try to use effectively. If there are two jobs that will take an hour of our time but we only have one hour spare then, other things being equal, we should use the time to work on the most profitable job.

If you don't see your time as a cost then I would suggest you are not optimising your profits. Maybe you don't want to but I would expect most people think that time is something they should take into account in their business.

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By woolley11
07th Jun 2012 14:50

Fee charges

It is always a difficult one.

I like to charge a MINIMUM - ON AVERAGE - of around £100+ per hour for standard accounts and tax returns. Additional more complex work is different of course.

Generally I find that if I charge £110 (plus VAT) for a tax return and it takes me 20 mins then realistically I have earned £330 per hour. However doing someones accounts it may take most of the day and may only charge say £450 which may equate to £75 per hour if I had chargeable hours of 6 for the day.

Also don't forget that if you have software, like I do from Digita, you need to include this in your charge out rates as mine costs nearly £1,800 per annum and it needs paying for somehow.

Don't fall into the trap of charging too little as you become a busy fool !

I saw a YouTube post that an accountant heralding the fact that he was only charging £20 per tax return - does'nt take an accountant to work out he was doing himself no favours whatsoever plus lower the value of our work we do for clients.

I also do adhoc FD work for a number of clients and charge this out at around £400 per day for 6 hours chargeable (after lunch time knocked off).

I do not get involved in payroll or book keeping as it is too much time for too little money and drops my average rate. This is farmed out and sometimes I put a mark up on it if possible. I have and still do book keeping for 2 clients on SAGE, but I get the average back up when I do the year end work as there is nothing to really do than post the TB on to Digita and sort out the year end bits and the corporation tax etc.

Hope this helps - I am based in Yorkshire to give you a geographic sense.

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Replying to tom123:
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By chatman
07th Jun 2012 17:30

Tax Return in 20 Minutes

woolley11 wrote:
Generally I find that if I charge £110 (plus VAT) for a tax return and it takes me 20 mins...

How can you do a tax return in 20 minutes? It takes me 20 minutes to roll over the data into next year's file, print everything to pdfs and review it all. And that excludes client correspondence, opening the source docs (even if just a P60), entering the data and billing

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Replying to stepurhan:
By petersaxton
07th Jun 2012 18:53

20 - 30 minutes

chatman wrote:

woolley11 wrote:
Generally I find that if I charge £110 (plus VAT) for a tax return and it takes me 20 mins...

How can you do a tax return in 20 minutes? It takes me 20 minutes to roll over the data into next year's file, print everything to pdfs and review it all. And that excludes client correspondence, opening the source docs (even if just a P60), entering the data and billing

With Digita the details are already there and I just have to enter the new numbers. PDFs, typing and sending emails only takes a few seconds/a minute each.

I can do most tax returns without self employed accounts or several properties in 30 minutes.

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By petersaxton
07th Jun 2012 16:30

Digita costs me more than it does you but it must still only cost about £5 per service so I don't bother consciously adding anything to the price. I am happy given the vast reduction in time achieved.

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Teignmouth
By Paul Scholes
07th Jun 2012 18:18

Optimising my profits?

Peter - you may have forgotten previous debates on this but I've spent years operating both methods and whether it be for profits, fees, client service, or lack of boredom there is no way I'd ever waste my time again keeping timesheets. How about you what's been your experience of the two methods?

My profitability is fees less expenses, what's yours?  It's more than adequate for my needs so what am I doing wrong?

Yes I am "limited" by having 10 months in which to complete most of the work I've undertaken to do but that's more than enough so, unless you propose that we all work 365 days a year with maybe 5 hours sleep a night, how is time a limiting factor? 

It's us and, dare I say, our imagination and fear of breaking moulds that limits what we do and so, in the example you give, if things were that tight, I'd pack up early and do both jobs next week.

 

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Replying to Red Kite:
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By andy.partridge
08th Jun 2012 10:09

Vast experience can eliminate any need to record time

Paul Scholes wrote:

My profitability is fees less expenses, what's yours?  It's more than adequate for my needs so what am I doing wrong?

Paul, just to remove any doubt, I have the utmost respect for you and have learned lots over the years from your posts, but I can't let your (rhetorical) question go unanswered.

You are doing nothing wrong, but you are in the advantageous position of being a vastly experienced practitioner. Most others lack your experience and/or lack your success. Imagine your question reading instead, 'My profitability is fees, less expenses. It is not adequate, so what am I doing wrong?'

I think you might advise yourself to record time spent on jobs to see what your internal charge out rate is. You might need more clients, you might be under-charging, you might need more systems to help your efficiency so you can do the same work in less time.

If your circumstances were different, I have little doubt that recording time could help you build a better business.

 

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By petersaxton
07th Jun 2012 19:38

Who imagines time is not important?

 

"Peter - you may have forgotten previous debates on this"

No, I haven't

"but I've spent years operating both methods and whether it be for profits, fees, client service, or lack of boredom there is no way I'd ever waste my time again keeping timesheets."

I don't see that recording time which, for accountants, is a very important factor, is a waste of time.

"How about you what's been your experience of the two methods?"

When I quote a fee sometimes I spend more time than I expect and other times I spend less time than expected. I'm then able to better improve my estimates in the future.

"My profitability is fees less expenses, what's yours?"

I don't bother with fixed costs until I prepare my accounts for tax returns. Therefore, my profitability is fees less time costs (which I allocate rates depending on the type of staff which would be required - I'd allocate less for bookkeeping and more for year end accounts and tax.

"It's more than adequate for my needs so what am I doing wrong?"

If you think it's adequate and you don't have time as a limiting factor you are not doing anything wrong. If you think you can work out in your head how long you and your staff have taken you will have all the information you need to know. If you get it wrong because you didn't spend a couple of minutes a day recording time you have only yourself to blame. I'm surprised that for someone with apparently limitless time you don't spend the extra minute or two recording time.

<<<Yes I am "limited" by having 10 months in which to complete most of the work I've undertaken to do but that's more than enough so, unless you propose that we all work 365 days a year with maybe 5 hours sleep a night, how is time a limiting factor? >>>

If you have more than enough time to do everything you want then you are doing well. Maybe you are heading slowly towards retirement and a less costly life. I am looking to spend more and more money as I get older.

"It's us and, dare I say, our imagination and fear of breaking moulds that limits what we do"

Imagination can limit some people. If you can't see the point of recording time I would suggest that is a limit to your imagination. If you have decided life is too short to record time but you are willing to have more time spent on jobs than is necessary because you don't want to put in place a simple management recording and reporting system I would suggest you are lacking in imagination rather than me. Maybe you have convinced yourself that you can keep track of everything in your head.

The fear of breaking moulds is an apposite point. You can merrily smash a mould and spill the liquid all over the place if it will not ruin the surroundings and you have all the liquid you want but if you cherish the liquid then smashing a mould is simply recklessness that will result in reality destroying your happy daydreams.

"and so, in the example you give, if things were that tight, I'd pack up early and do both jobs next week."

I was hoping I didn't have to explain the most obvious part of the example. It was a simplification to ensure the point was not hidden in complexity. You can pretend you don't understand but the point is still clear.

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Teignmouth
By Paul Scholes
08th Jun 2012 09:30

Draw a line

Peter - on the plus side at least I think we agree that billing a client based on the time we took to do a piece of work is not fair on either party, in particular the client is powerless and, unlike practically everything else s/he buys, doesn't know what it will cost till after the work is done.

This, I think is the subject of the original question and has been summed up nicely by Tracy above.

Our debate therefore is whether you still retain timesheets as a management tool, ie, as we did for years, using them to guage efficiency rather than determining what to charge?  After all, if you negotiate a fee of £100 with the client for the proposed work and everything went to plan except that your member of staff took 2 days rather than the anticipated 1 day then yes, you need to find out why that was, for internal purposes, why were they so inefficeint in doing the work?

The above issue exists and is valid, whether you costed his/her time at £50 or £150 per hour and that, I think is where we don't see eye to eye.  So you still talk in terms of "time costs" and ignoring fixed costs but then salaries are fixed costs so whether you apply £50 or £150 to a staff members time has no bearing on the fee or salary and therefore won't effect profit.  Like any other business I want to know what my profit is likely to be in real terms cash in & cash out, not in terms of minutes x £s.

Going back a step to when most of our fees were time based the above situation played itself out year after year and quarter after quarter when the firm's revenue and profits based on "time costs" was healthy but we were constantly up to our overdraft limit.  The answer of course was that hourly rates are arbitrary and just add more complexity when multiplied by time that may already be unrealistic, ie all of our "profit" was tied up in WIP, a chunk of which was irrecoverable.

Our difference in opinion therefore can be summed up in your statement "When I quote a fee sometimes I spend more time than I expect and other times I spend less time than expected. I'm then able to better improve my estimates in the future ".

When I assess whether a job is easier or harder for someone (which may leads to them taking less or more time) we go over the work itself as it's happening, not after they have done it and completed a time sheet, each job is planned and stages anticipated and its progress is monitored based on that and what the client promised to provide.  At each step of the way the object is to find better ways to carry out the work and improve the clients' understanding & record keeping.  If we improve how we do things that has no bearing on the client's whereas if the client has done more than expected, they benefit either in a credit note or a "if youy can do the same next year we can drop the fee by x%".  If the client has not provided what is expected we stop the work and get them to rectify it or quote for the extra work needed.

So like the vast majority of businesses, I manage & assess my and my colleagues' performance based on the work being undertaken and not just the time it took.  In decades I've dealt with thousands of service sector businesses large & small and have only had one of them who kept timesheets, what makes us so special?  Maybe we are just daft and follow a religion because that was what we grew up with?  As I've said before, my principal at the firm I studied with wouldn't keep timesheets as they wre a modern fad from the USA.

So yes I am now in "getting smaller" mode but I wish I'd realised all this when I first set my practice up as it would have worked so much better.

 

 

 

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Replying to lionofludesch:
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By andy.partridge
08th Jun 2012 10:33

Actually, not so

Paul Scholes wrote:

in particular the client is powerless and, unlike practically everything else s/he buys, doesn't know what it will cost till after the work is done.

In the temporary labour market, rates are hourly based as is overtime for fixed cost staff. It could easily be argued that where labour is the principal cost in a transaction a time-based price is expected.

Wearing my cynical hat, it could equally be argued that a fixed fee is a method of getting the client to pay more for something that takes less time to do than the client expects (and the accountant hopes) .

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Teignmouth
By Paul Scholes
08th Jun 2012 12:03

Andy?

Hi Andy - with regard to your first paragraph, about temp labour markets and overtime, have to say that neither of these apply to my business and I'm struggling to remember more than a few weeks in 30 years that it did.  In the vast majority of cases I would guess that accountants' labour costs are pretty much a fixed cost. Even if I employed a subbie on a job by job basis, who wanted to charge me by the hour, I'd fix the number of hours for that job before a mouse button was pressed.

With regard to your 2nd papa; "Fixed fee" is misleading and, to my mind, indicates a shopping list approach, ie "basic tax return with these pages & no CGT £150 + VAT" ie pretty much regardless of the client's needs or perception of what's being done.  On the plus side, it's easy and the client knows what they are to pay for the work.  I don't agree with you though that it's a way of forcing a client to do something against their will, if they are grown up they can always say no or ""that seems a bit steep is there any way you can come down?"  As I've pointed out before time is not what's of value here it's what you do in the time that the client is buying.  Having discussed it with all my clients they tended to agree that they didn't give a monkeys whether it took us 5 or 10 hours to do a tax return, that was up to us, all they wanted was the tax return.

The stage on from a fixed fee (as described above) is to look at the work AND the client it's being done for and agreeing a price for that work, with that client.  If another client gets the same work for more or less and both are happy with it (and you are not operating on a "max the client can afford" basis) then neither is being ripped off.  As with opening the bonnet of my car to fix something, these days I'm prepared to pay someone £200 to do it for me, whereas years ago, when I was capable of doing it myself, I might only have been persuaded to pay someone if it was the equivalent of £50.

That's why my two clients can know each other and the differing price and still be OK because one is more than capable of doing their own tax return but is bored with it and the other wouldn't have a clue.  As long as I want to keep acting for both, I'm fine with that as well.  Thankfully we deal with humans and not pre-programmed robots.

PS that's my lot, each to their own, not really earth shattering stuff, but let's review it again in a couple of years.  As David indicated above, it wasn't that long ago that an ignore time posting would have got someone reported to the thought police.

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By andy.partridge
08th Jun 2012 13:00

A sub-reply

Hi Paul

I wish you had replied to my response of 10.09 and not the 10.33 one, which was really an afterthought.

However, if it really is your final post I should point out that I think you have misunderstood my 'afterthought' which was not that accountant's labour costs aren't fixed, but that it is not extraordinary that client labour costs aren't and that there are plenty of examples of the client buying something without knowing what the final cost will be and/or the value they will get from it.

My second paragraph was a little tongue in cheek, but if the client mindset is that an hourly rate is acceptable, then a reason for the accountant offering a fixed fee might be, in effect, to get a higher hourly rate! After all, what accountant is going to offer a fixed fee to ensure their effective hourly rate is lower?

This is not about how the client should be grown up enough to refuse what they consider to be a high fixed fee, but if they can not relate what you do and the time it takes to do it, theymight not be in a position to assess if the fee is a high one or not. They are faced with either accepting it or not accepting it.

If it takes you 10 minutes to do something and you charge £100.00, this is the equivalent of £1.2m per annum. That might horrify a client who might see you as the equivalent as their Board director on £100k. Obviously I haven't taken into consideration non-productive hours but you see my point (hopefully). 

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By petersaxton
10th Jun 2012 18:40

Fair, fixed costs and arbitrary

 

“Peter - on the plus side at least I think we agree that billing a client based on the time we took to do a piece of work is not fair on either party”

Why isn’t it fair on the accountants side?

“So you still talk in terms of "time costs" and ignoring fixed costs but then salaries are fixed costs so whether you apply £50 or £150 to a staff members time has no bearing on the fee or salary and therefore won't effect profit.  Like any other business I want to know what my profit is likely to be in real terms cash in & cash out, not in terms of minutes x £s.”

I disagree that salaries are fixed costs. If you have two members of staff then you might be able to get by with one member of staff or you might need three. Obviously, Paul, you may have decided that you are not going to change the quantity of employees whatever the circumstances but I think you will be unusual. The time that staff spend on jobs can be calculated precisely. It is less easy to do that with electricity, say. You can do it with rent and rates but that should be taken into account when you set an hourly rate.

“Going back a step to when most of our fees were time based the above situation played itself out year after year and quarter after quarter when the firm's revenue and profits based on "time costs" was healthy but we were constantly up to our overdraft limit.  The answer of course was that hourly rates are arbitrary and just add more complexity when multiplied by time that may already be unrealistic, ie all of our "profit" was tied up in WIP, a chunk of which was irrecoverable.”

Why are hourly rates arbitrary? Yes, you can set them as £1,000 an hour but unless you can justify it you would make bad decisions. The hourly rate should be a minimum of your costs. If you pay somebody £25 per chargeable hour (taking into account holidays and non-chargeable time) and £5 per hour for overheads then the minimum hourly rate is £30 per hour. You might say you want £70 per hour profit so you use a hourly rate of £100 but if you find that over a period of time you are only breaking even if you use an hourly rate of £65 then it would make sense to use an hourly rate of £65.

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