Mark Lee explores the tendency for accountants to work for clients without payment – sometimes without realising that is what they are doing.
On the face of it this seems an unlikely scenario. How many accountants would admit to working for no payment?
In practice there are at least four scenarios where this happens.
This is the most obvious situation. Some accountants will provide accountancy or tax related work for people who cannot afford to pay for it. In such cases the clients are likely to be well aware of the accountant’s generosity.
By the way if you don’t feel able to do this yourself do remember that there are some excellent resources available for people who cannot afford to pay an accountant:
- Low Income Tax Reform Group – a voice for the unrepresented, providing loads of free resources for disabled people and carers, low income workers, migrants, pensioners and students
- Tax Help for Older People – an independent free tax advice service
- TaxAid – a charity that helps people on low incomes with their tax affairs
By ‘free work’ I am drawing a distinction with work that is consciously done for free for people who cannot afford to pay for it.
Free work is what you do when you do more work than you intended and you make no effort to get paid for it. This is sometimes said to be due to ‘scope creep’ as the scope of what you are doing is creeping away from your original expectation.
Notice I referenced you doing ‘more work’ than you intended, not simply where the work takes ‘more time’ than you hoped, or more time than the client would pay for.
How often do you do free work? And why does it become necessary?
The advocates of value based billing also talk about getting clients to formally agree to an additional fee for every material change in the original service requirement. I’m doubtful that many readers of AccountingWEB adopt such a policy. But if you do, please share your thoughts in the comments section below.
Possibly the most common time when free work arises is in the first year of dealing with a new client. It’s very easy to quote what you think is a competitive fee that would be fine in year two but which doesn’t really reward you adequately for the extra time it takes to induct a new client.
The extra one-off activities that take time in year one include all of your client take-on processes, including that required for anti-money laundering identity verification, liaison with your predecessors and tailoring and issuing your letter of engagement and terms of business. Then there is the time it takes to get up-to-speed with the client’s bookkeeping and accounting requirements, loading their tax return data onto your system, doing the necessary with HMRC and so on.
It’s very common to ‘give away’ all of the extra time spent with new clients. You tell them that it evidences your commitment to a long-term relationship. But how commercial is this? If the majority of your clients stay around then perhaps it really is a good investment.
Another way of looking at this is that you are giving away time to new clients at the expense of investing that time with existing clients. Why should new clients get that extra commitment from you?
If you are running an established practice perhaps you could quote two fees to new clients? One would be the commercial annual recurring fee (or your estimate thereof). The second would be your take-on fee. It’s up to you whether or not to charge that second fee but by putting a figure on your investment in the relationship you educate the client that there is always a value to what you do.
You may choose to waive the ‘take-on’ fee if all goes smoothly, but you could also reserve the right to charge the fee if the client doesn’t do all that they promise to do on a timely basis or if they cease to be a client within, say, three years.
Another reason for adopting such a stance is that accountants typically spend more time engaged with clients in the first year than in the second and subsequent years. Even if you do not charge the take-on fee your references to it can help educate the client that they should not expect the same degree of time and attention in subsequent years.
If you simply invest the extra time with clients without being clear as to what is going on, they could feel short-changed in year two when you are less often in touch or when you seek to get through things much faster.
Scope-creep with recurring work
This tends to happen with longer-standing clients. As the years go by so they require a little more work each year and you haven’t really taken this on board. You just do what needs doing and keep the fees in line with before – whether consistent or just increasing them for inflation.
In reality, after a few years you feel that you’re not being adequately remunerated for all the work you do. It’s more than it was when the client first came to you.
What can you do? You don’t want to simply put up the fees as surely that will upset them and you may lose them as a client. So you put their feelings ahead of your own and you choose to be the upset one who is doing work for free.
One solution to this scenario is to open lines of communication. To explain the situation and gauge the client’s reaction to a larger increase in the fee. Even if takes three years to get it up to a commercial sum that’s better than not discussing it all.
Scope creep with ‘special work’
You can end up doing free work here if you quote a fee for a one-off piece of special work or advice and you are insufficiently precise as to what you will do for the fee. As a result you end up spending far more time on the project than you had anticipated. In effect the scope of what you are doing creeps away from you.
One way of avoiding this is to quote an initial fee for the first stage of the extra work and to give an estimate of the fee for the second and later stages of the work. You can then quote for these more accurately once you have a fuller understanding of what will be involved.
Credit where it is due
If you know when you are doing free work I am a big advocate of ensuring that you tell the client you have done this. If you don’t tell the client you will get no credit for the extra unpaid work. As a result you are likely to resent the fact that you are giving away your time for free. That’s not healthy.
Free work for commercial (vs charity case) clients generally arises when accountants have not been sufficiently clear as to what they will do for the quoted fee. Your engagement terms are key to avoiding such situations. The simple question is therefore are you happy doing free work for clients? Are you aware of when you do this and have you thought about how you can reduce the amount of free work that you do?
Mark Lee is consultant practice editor of AccountingWEB and writes the BookMarkLee blog. This and his ebooks are for accountants who want to stand out and be more successful in practice, online and in life. He is also chairman of the Tax Advice Network of independent tax experts.
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