January hell: break the cycle now. By Mark Leeby
Tempting as it is to forget all about it, for accountants who want avoid a January like the last one, and the one before that, the time for planning is now. This article is adapted from Mark Lee’s talk “How to make more money from your smaller clients (without fancy schemes)”.
Ten years on
Many of us were surprised by the build up of pressure to the first self assessment tax return filing deadline on 31 January 1998. The following month we started thinking about how to avoid a recurrence. And yet, for many practitioners every January is hell. Every year I ask accountants all around the country how they have fared and the story is sadly consistent. January 2008 was no exception. For many accountants it was ‘horrible’, ‘rushed’ or simply ‘manic’. Why is that?
The most likely reasons that January is a tough work month are:
a) Clients have not responded to your efforts to avoid the January rush;
b) You have been so successful that you have taken on lots of new clients who have yet to be trained to avoid a last minute rush;
c) You have given up and just accept that some of your clients will always leave things to the last minute.
Which is it?
It has its compensations
If January 2008 was tough then at least you can compensate yourself with the holiday you had at the start of February or with the extra fees that are sitting in the bank. You can’t? Why on earth not?
As part of my role as the accountants business coach I often hold up a mirror to my clients when they blame their clients for problems. Then we can work on ways to resolve those problems.
In this article I’m going to focus on the steps you could take now to ensure that next January does not go the same way as it has in recent years.
2008 is your last chance to change things
Accountants have a unique opportunity this year to effect changes in their systems and approach as the filing deadline is coming forwards to 31 October 2008. How much credibility would you have as an accountant and business adviser to your clients if you don’t plan to take account of the impact of this known change in the tax rules?
If you do nothing you could end up with twice the hassle this year – once in October for any clients who still have paper based returns to file and then again in January ‘as usual’.
What do the relaxed accountants do?
I am going to highlight a number of valuable ideas that are practical and commercial approaches in use around the country. Some are adapted from other service providers. Others were suggested by accountants who have attended my talks or whom I have mentored. Accountants who apply or adapt these ideas will have less hassle, less last minute rushes and less worries over fees.
What are you worth?
Let’s start with a truism. No accountants complain that their clients are paying them too much. Conversely there are four main reasons why accountants think their clients are paying too little:
1. They haven’t put the basic fee upto a commercial level;
2. They don’t charge more during their busiest period;
3. They haven’t asked their clients to pay for ‘extras’.
4. Their clients won’t pay for ‘extras’ even when asked
In this article I am focusing on the first two reasons.
If your basic fees are too low then now is the time to consider how to break this to your clients. And you need to decide whether this is necessary as regards all or just some of your clients.
You’ll need to do this before you start work on next year’s tax returns. I suggest you book a chunk of time in your diary to plan how you will do this and maybe to brainstorm some ideas that will work for your practice and your client base. In my experience whilst there are plenty of issues that are common to many firms, everyone is different so what works well in one firm is not automatically right for another.
My accountancy clients normally find it helpful to start by focusing on how much they want to earn from their practice. Then we can determine what they will need to do to achieve that ambition and how I can help them in a sort of non-exec role. Ultimately though it’s up to you to decide what you want and how you’re going to get it.
When your fees go up you will invariably lose some clients but even if you do, overall you are likely to end up with more fees and more time – a win-win situation. And if you also make a reciprocal fee arrangement with a smaller accountant to whom you send your old clients you can ensure that everyone is happy.
It seems that no matter how hard we try to get clients to supply all relevant tax return and accounts information in good time it doesn’t happen.
Many accountants have clients who pay a regular fee each year for their ‘tax return’ or for ‘their accounts and tax return’. In such cases the fees increase by inflation each year but the payment terms, timing of submission of information etc all remains pretty static. How about using the new filing deadline as justification for a review and change in your standard practices?
Do you want to be paid the same for work you do under pressure just prior to the deadline as you do for work done earlier in the year? If not then you need to introduce some form of differential pricing. Your clients are used to this in other disciplines. Pubs have a ‘happy hour’, restaurants offer ‘lunch time specials’, trains offer ‘cheap day returns’ and hotels offer seasonal deals.
You may be one of those accountants who slavishly attempts to bill clients by reference to the time you spend according to your time sheet. So when you do things in a last minute rush clients actually get a lower bill than those whose returns you did earlier in the year when you could afford to spend more time, be more careful and provide more advice. That’s not the best way to build up a successful and profitable practice in my view.
Still, you may well have plenty of clients who don’t know what you’re going to charge them this year. They probably just hope it will be no more than last year. Let’s think about how we can use this fact to get all the relevant information for their tax returns from them in good time.
Have you thought about accepting payment by credit card or offering some clients a money-off voucher for example? Even though these are not something commonly associated with accountants, our clients see them all the time.
Simply stated, if you want clients to let you have all the necessary information to complete their tax returns in good time, you need to incentivise them. At this stage of the year therefore you need to plan your pricing policy and to ensure that (the slowest) clients appreciate that it’s not just the £100 late filing penalty they want to avoid. It’s the additional fees they will need to pay you – before you start work on last minute tax returns.
In the context of differential pricing some accountants have what I call ‘seasonal fee’ quotes. If the client gets them all the information to complete the tax return in the summer (say before the end of July) the fee is X pounds. It’s 20% higher if the information arrives in August or September. It’s another 20% higher if it comes in during October or November and it’s a further 50% higher if the information arrives on or after 1 December.
One accountant I know positively looks forward to getting tax return information in January because she gets paid so much extra for doing the work that month.
Indeed I know of plenty of accountants who find seasonal pricing a very effective way of increasing their fees and of ensuring that they are adequately rewarded for working long hard hours in December and especially in January.
Timing your bills
Some accountants make it clear to their clients that they will require payment upfront from anyone who wants them to complete their tax return in January – even long established clients. That way the accountants never risk putting themselves out for a client and then having to chase up for the fee at a later date.
Many other accountants charge an annual fee and get clients to pay this in monthly instalments throughout the year.
The majority however still only send a bill to the client after the tax return has been filed – whether by post or electronically.
If you’re not going to bill your fees up front I much prefer the idea of sending a fee note with the tax return for signature. I’m told that almost all clients will then send a cheque back with the signed return. This significantly improves cashflow as compared with the old fashioned approach of only sending the bill out at a later date.
Some accountants claim that they couldn’t send fee notes out with tax returns as they don’t yet know how much the fee is going to be. Perhaps the return will need amending and this could push the fee up.
I’m sorry but I think that’s a cop out and an example of woolly thinking. Surely the vast majority of tax returns sent out for signature don’t need amending before they can be submitted. If they do then I would suggest there is something wrong with the system that lets them get sent out in the first place.
If you have a couple of clients who always find something to amend and you want to charge them extra for dealing with the amendments – that’s fine, but don’t let those difficult clients determine your general billing policy.
In the same way I would suggest that you ought to know roughly how much most clients’ bills will be such that you can send the bill with the tax return for signature.
The accountants who claim they cannot do this are, I would suggest, giving their time-recording system too much credibility and authority.
If this year’s tax return takes a little bit longer than last year’s tax return you will need to be able to identify something extra that has been done. This could for example be identified by reference to a menu of charges as is used by many successful and profitable firms.
The self assessment tax system has been with us for over ten years. The change to the filing deadline (for paper based returns) in 2008 is a one-off opportunity for accountants to enhance their billing strategies.
That doesn’t necessarily mean increasing fees across the board. But it provides justification for ensuring that dilatory clients either pay their way or go elsewhere. And the sooner that you start planning for this to happen the sooner you can start making your holiday plans for next January!
Mark Lee FCA CTA(Fellow) is the Accountants Business Coach and a past Chairman of the ICAEW’s Tax Faculty. In addition to running the Tax Advice Network, which he founded as a resource for accountants in general practice, he also helps accountants, tax advisers and accountancy firms to achieve their business ambitions and success. See www.BookMarkLee.co.uk.