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Practice Tip - Pricing

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6th Apr 2005
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I have followed with interest the recent discussion on pricing on Any Answers

Pricing is an accountant's nightmare. You have no idea in advance what the job will really entail because you have no idea what state the books are really in, what tax problems you will encounter, whether the client is organised or not, and so on. Sure, you can make enquiries of the client, and if you are lucky from a previous accountant, but none of this gives the whole picture.

But, the client wants a 'fixed price'. There is an obvious conundrum in this. Who is taking the risk on the client having good books and records and efficient systems ' you or them? My answer is unfortunately, you both are. But that's much better than saying you are.

How to do this? I think any quote has to be quite clear about what it covers. So it's fine to say you'll do the accounts, format them in statutory form, prepare the CT return, and submit everything to all relevant authorities for, say £1,000 if that is your fee estimate for the job, but your seriously failing yourself if you stop there. In estimating that fee you made certain assumptions, such as:

' the client would deliver complete books and records to you;
' the would be written up;
' the bank account would reconcile;
' the VAT returns were correct, and would reconcile;
' the PAYE returns would agree to the accounts (this is an assumption even if you have done the PAYE);
' if a cash account has to be considered the difference will be immaterial;
' the client will answer all queries on a timely basis;
' and so on.

Now, if any of these assumptions is wrong then of course the quote will be wrong too. So my answer is that you should, when quoting, specify these assumptions. If you do they let you put forward your optimal price in all honesty. Then if things do not turn out to be optimal you have two courses of action:

1. you should have told the client in advance what the hourly rate for variations is;
2. you should tell the client when the need to charge for variations arises. Now, judgement is needed here. Clearly you should anticipate not everything going absolutely right when you quote for any job, and that there will be swings and roundabouts e.g. the bank works well but the VAT does not. But when it's clear that this is a one way ticket with all the odds stacked against you, then the client has to be informed of that fact, be told what has gone wrong and must be given an estimate of the extra costs to be incurred. Of course at this point they might want to stop you working on the accounts. Thankfully, at this point you also have a lien on the books and records for the work done to date, especially if you have got your engagement letter signed.

None of this will mean the bad job will become a well paying job. But it does mean that you have a greater chance of recovering costs. And it also means that the client realises that it is within their own capacity to cut their costs in future, especially if that is clearly laid out at the time of billing.

Pricing will always be judgemental, but it should not be a loss leader through no fault of your own, and it won't be if you're willing to keep the client informed of the problems they have caused.

Richard Murphy
[email protected]
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. In addition to accounting, writing and lecturing Richard develops and markets software tools and guides to help accountants in practice systematise their operations.

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By martinfoley07
08th Apr 2005 12:42

er,... lien on books !!!
Well, I shall get a barrage of upset responses for this posting, but here goes.

I agree completely (i) any quote will necessarily contain good faith beliefs and assumptions (ii) such beliefs and assumptions should of be based on proper enquiry, and not be ignorant guesses in order to produce low quote (iii) (ideally) they are better spelt out in writing (iv) in the nature of things, not all the beliefs and assumptions (excluding swings and roundabouts)will be proven correct.

But if the accountant does not have the necessary negotiating and people skills to sort out a sensible deal, should he/she be in the business?

Ah, I hear the anguished cry, what about all those nightmare clients who turns out to be 100% bad and unreasonable, so that even a saint with exemplary negotiating skills could not achieve a fair compromise?
Er, how many such clients does any practice have? If more than one, urgent need to examine client acceptance and retention process - including accountant's ability to judge folk. Much more sensible and cost effective to ditch such clients as soon as such an issue comes to light rather than having pathetic fight over legal rights and liens for a few hundred quid. Unless of course it's a regular event, in which case, who exactly needs examining?

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