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Why over 90% of accountants are failing their clients

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4th Mar 2011
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In the first two articles we saw that more than half of all practising accountants make losses, and that the main cause of these losses was not charging high enough fees.

Not charging enough leads to three types of harmful compromises…

  1. COMPROMISED FINANCIALLY – Either the practitioner settles for earning less, which means that they and their family’s financial security and prospects are compromised and harmed. Or
  2. COMPROMISED PERSONALLY – The practitioner attempts to rectify matters by working longer hours and doing more of the work himself, rather than paying others to do it – which compromises and harms his life-work balance, the time he is able to spend with his family, and perhaps even his health. Or
  3. COMPROMISED CLIENT SERVICE - The practitioner cuts corners on service in order to keep things “within budget” – compromising and harming the interests of his clients.

The evidence suggests all three are compromised.

Sadly, the evidence suggests that practitioners are being forced to make all three of these compromises, and as a result they, their families and their clients are all losing out. For example:

  1. Financial compromises evidence – Article 1 in the series showed that more than half of accountants are making what economists would regard as losses. Which is presumably why a February 2011 survey of 137 practitioners by AVN found that 73% were planning to improve their profitability in 2011
  2. Personal compromises evidence – 2010 research by the Chartered Accountants Benevolent  Association found that 82% of accountants suffer from stress, 77% think they work too many hours, and 71% say that their life-work balance is a problem. Which no doubt explains why AVN found that 63% of practitioners hope to improve their life-work balance in 2011
  3. Service compromises evidence - March 2010 research by CCH found that 36% of clients are not highly satisfied with the tax service they get from their accountants. UK200 Group and Clydesdale Bank research from 2008 suggests that 90% of clients don’t believe their accountant is saving them as much tax as they should. While my own research suggests that more than 90% of accountants are failing to give clients the tax advice they should.

In the rest of this article I want to focus on the way charging too little is harming client service, since this goes to the very heart of our responsibilities as professionals.

Why and where service suffers

Ours is a great profession, filled with honourable people who work hard and want to do the very best for their clients.

But sadly, charging too little means that there isn’t always enough time in the budget to do things properly. So corners sometimes need to be cut in order to stay within budget.

In my experience the corners are not generally cut on the things we actually do for clients. Where corners are cut tends to be on the things that we should be doing for customers, but aren’t.

Let me demonstrate that by inviting you to take a simple four-question survey.

(NB: For ease I have focussed the quiz entirely on the basic tax issues that everyone knows we should be helping our clients with. But I could just have easily focused it on the business advisory issues we also know we should be helping them with).

Self-assess your own service levels

Please answer each of these questions with either a “Yes” or “No” answer – but ONLY give yourself a “Yes” answer if you can say yes to every single aspect of the question.

  1. Incorporation - Do you know for a fact that in the last 12 months you have identified every single one of your firm’s clients who technically qualifies to save tax  by incorporating and capitalising (your best guesstimate of their) goodwill, and given them a robust up-to-date  estimate of how much tax they could potentially save between now and when they want to dispose of the business, so that they can make a fully informed decision as to whether incorporating is right for them given their current mindset, profitability, drawings, and tax regime? And have you completed the picture by also giving them a robust estimate of how much extra cash they may be able to claim in Tax Credits while they draw down their resulting loan accounts?
  2. Tax Credits – Do you know for a fact that in the last 12 months you have identified every single one of your firm’s clients who technically qualifies for Tax Credits, and given them a robust estimate of the full amount that they are entitled to claim over the next few years, so they can make an informed decision as to whether and how much to claim?
  3. Change of year end – Do you know for a fact that in the last 12 months you have identified every single one of your firm’s clients who technically qualifies for saving tax by extending their accounting period (perhaps because of falling profits during the recession), and given them an estimate of how much they could save, so they can make a fully informed decision on the right year end for them?
  4. Sleeping partners NIC refund - Do you know for a fact that in the last 12 months you have identified every single remaining client of the firm who technically qualifies for a refund of NIC contributions paid by one or more sleeping partners, and given them an estimate of the total amount they could reclaim and save, so they can make a fully informed about whether to make such a claim?

NB: There is nothing magical about the four tax planning ideas in this survey. They are simply the first four that spring to mind, and could have been replaced with dozens of other equivalent tax planning ideas.

Did you score 4 out of 4?

If you didn’t, you are not alone. In fact I have conducted this type of survey with more than 500 accountants in recent years, and well over 90% admit to not scoring full marks.

Those accountants always agree that the questions are fair, and accept that they should be scoring full marks. And when I ask them why they haven’t, they always say “because there isn’t enough time in the budget”.

But, of course, the amount of time in the budget is a direct consequence of the size of the fee. So ultimately it all comes back to fees being too low to do a proper job.

What does this failure rate mean?

Crucially, it doesn’t mean that more than 90% of accountants are bad. As I said before, I for one believe this is a great profession filled with people who want to do a great job. But because of the way they price, the odds are stacked against them.

And that in turn means that clients suffer. After all, together the four simple tax planning ideas in the survey can add tens of thousands of pounds (and quite possibly hundreds of thousands of pounds) to each client’s bank account. And when you add in all the other (tax and non-tax) things we could also be proactively advising clients on, but don’t have time in the budget to do so, the numbers become frighteningly large.

Not having the time in the budget to fully explore these avenues is depriving clients of huge amounts of extra cash. In fact, across the typical client base it could easily run into millions and millions of pounds.

Many thousands of pounds per client. And many millions of pounds across our clients base. That’s how much being too cheap costs our clients.

As professionals, that is an issue we simply cannot afford to ignore.

Excuses R Us

The implications of the previous section are so shocking that for some readers it will no doubt be tempting to go back to the survey and try to find reasons why it isn’t valid. For example:

  • “I don’t know for a fact, but I do have a fairly good idea that we are doing these things” – Sorry, but having a “fairly good idea” is not really good enough. Surely professionalism requires us to know we are doing things properly, not to operate on hope.
  • “We’ve done them, but not in the last 12 months” - Things are changing so quickly these days that it is no longer good enough to have a one time only conversation with clients on key issues. They need to be considered every year. Take incorporation for example, the fact that you talked to the client about it a few years ago is irrelevant. Since then, as well as changes to the tax rules and rates, there may also have been changes in the businesses profitability, prospects, drawing aspirations, along with changes to the owner’s attitude towards the risk of being unincorporated in volatile times and how happy they are to pay more tax than necessary
  • “We’ve done them with lots of our clients” – It may well be true that you have done these things with your best or favourite clients. But what about the rest? If they found out, would they magnanimously say “It’s OK that you didn’t get me the extra cash just as long as you did it for the other guy”! Or would they be unhappy?
  • “It would take too long to give them robust estimates” – Not true. You should already have the software that does most of these calculations in seconds. And if you don’t, you can easily create your own spreadsheets to do the job, or tap into free tax apps from the likes of The Tax Club
  • “Not every client can do these things” – That is true. But it is not a factor in whether you scored less than full marks. Remember, each question in the survey only asked you about clients who “technically qualified”. So by definition you were only answering for that subset of your clients that can do these things
  • “Our clients don’t want these things” – How do you know until you give them the full facts? Do you really think that if you went to clients and said “I have found a way to get you thousands of pounds in extra cash” that every single one of them would say no thanks? Isn’t it much more likely that at least some of them would be happy to invest in paying your extra fees in order to help them get many times that amount back in return?
  • “We don’t do tax credits because they are part of the benefits system” – Tax is what clients pay when they earn lots of money. And Tax Credits are what clients get back when they don’t earn lots of money. They are the two sides of the tax system coin, and it seems commercially daft not to help clients with the side of the tax system coin that can only ever put extra cash into their pockets.
  • “Clients haven’t asked us to do these things” – Of course they haven’t. They don’t know what is possible. It is up to us to continuously scour the landscape and spot possibilities for them. Professionals don’t wait for clients to come up with all the good ideas.
  • “Our engagement letter doesn’t say we have to do these things” - That may well be true, but misses the point morally and commercially. If you have ever told clients (through your website, brochure, sales pitch) that you are proactive, and that you will help them to pay as little tax as possible, then you have a moral obligation to actually do so, no matter what it says in your engagement letter. And there is also a commercial reason why you should go beyond your engagement letter: since the more opportunities to save tax that you point out to clients, the happier they will be, and the more often they will offer to pay you extra fees to help them to actually get those savings.

The bottom line is this…. there are no valid excuses.

For the sake of the reputation of the profession as a whole, something has to change.

What we can do to make things better

The three step solution is simple…

  1. BE MORE PROACTIVE – systematically spend more time proactively exploring all the key opportunities open to each and every client
  2. CHANGE THE WAY YOU PRICE – fund the extra time costs by changing the way you price and, in particular, charging more (see my previous article in the series for lots of insight into how to do this )
  3. GET THEM EXTRA CASH – focus your energies on services and solutions (such as tax planning, tax credits, and profit improvement) that help to put extra cash into clients’ bank accounts

Do this and your clients will be happy. They will regard your input as more valuable and worth more to them.

As a consequence they will gladly pay you more. And they will gladly give more referrals. So you practice will enjoy improved profits, stronger growth and an enhanced reputation.

To me the alternative is unthinkable.

Steve Pipe FCA is a leading strategist on the commercial issues and opportunities facing accountancy practices. You can see him in action on the AVN website, contact him on [email protected], and connect with him on LinkedIn.

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Replies (15)

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Steve pipe
By Steve Pipe
04th Mar 2011 16:17

Extra guidance

If you want some extra guidance on how really successful firms do the things recommended in this article, along with a list of free stuff that makes it even easier, please contact me on [email protected] and I will gladly email them back to you.

 

STEVE

[email protected]

PS  If you like what you read, it would be an honour to connect with you on LinkedIn –  http://uk.linkedin.com/in/stevepipe

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the sea otter
By memyself-eye
04th Mar 2011 20:32

when I hear the phrase 'leading strategist'

I think of all the 'leading strategists' in history who ultimately failed - Manstein, Bonaparte, Westmoreland, and wonder why we are being beaten over the head with this guff.

What a load of tosh.

  

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By cymraeg_draig
04th Mar 2011 23:07

.

What a load of tosh.

 

Posted by memyself-eye on Fri, 04/03/2011 - 20:32

 

I hear a lot about "added value".  I've always wondered  - what "added value" do salesmen add ?  They always put me in mind of fleas on a dogs back - sucking the goodness out of the dog but serving no useful purpose.

 

 

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By Paul Dunn
05th Mar 2011 14:30

Tin hat required

The tin hat is already required!

Steve, you quote some interesting research numbers. My research is empirical by contrast. Here's a simple example:

Whenever I ask accountants to put up their hands to let me know if they have clients they don't like, barely a single hand stays down. (By the way, in the context of your article, I'd strongly suggest a hand up = a stressed accountant)

The follow up question is obvious — WHY?

I mean seriously ... WHY? Why are we dealing with clients we don't like?

And maybe many of those we don't like are those that we simply don't charge enough.

Here's the crucial point — bad clients (however you choose to define 'bad') drive out good ones.

Good ones cause no stress. They pay well, they pay on time and they value you. And they are the ONLY clients you need.

 

-- Paul Dunn Chairman, B1G1 Come join me at www.b1g1.com Giving your business the power to change our lives Follow me on Twitter at http://twitter.com/pauldunn Email me at: [email protected]

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By Bob Harper
06th Mar 2011 08:19

Salesman or accountant

@CD - what matters is what something is, not what you call it and a salesman or saleswomen (who are often naturally better a consultative selling) adds huge value.

One example will be helping the prospect work through the implications of change. Not just the benefits but the cost of the product/service and the secondary costs of implementation. An added value salesman will also get the prospect to work through the implications of not changing. Again, there will be benefits and costs.

They will (at the appropriate time) offer an opinion based on a deep understanding of the prospects situation, desires and frustrations. This could be to do nothing or take the product/service or someone else’s; whatever is best for the prospect. 

If you think about it, isn't this what accountants should be doing?

I think what Steve is try to avoid is the accountancy profession being seen as sucking the goodness out of UK businesses and serving no useful purpose apart from being an extension of the tax office.

Bob Harper

Portfolio Marketing

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By cymraeg_draig
06th Mar 2011 10:54

Bad clients

I mean seriously ... WHY? Why are we dealing with clients we don't like?

 

Posted by Paul Dunn on Sat, 05/03/2011 - 14:30

 

The question you should be asking is, should this accountant be in business ?

We don't have to be "best mates" with clients, but, where a client is actually unpleasant then I agree they should be shown the door.

We have certain "golden rules" which I insist are strictly adhered to.

Any client, (no matter how big or how lucrative, no matter how long standing), who become aggressive or abusive is instantly dumped.  No exceptions and no excuses.  Any client who fails to adhere to our basic rules is instantly dumped. For example, we make it absolutely clear that WE deal with HMRC on behalf of the client and they never, ever, correspond with or talk to HMRC without our presence. This is because in the past "innocent" comments by clients have caused immense amounts of work and cost as tax inspectors have a nasty habit of twisting what taxpayers say.

So I agree, most accountants need to be more ruthless about weeding out bad clients.

However, of course, there will always be accountants who are desparate for work, need the money, and will put up with any client so long as he pays them.

 

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the sea otter
By memyself-eye
06th Mar 2011 16:34

i have several clients who drive me bonkers...

Doesn't mean I don't like them - and they always pay me.

What I don't need is this "accountants need to do more stuff"

When I buy a fridge, for example, I don't want, or need Hotpoint telling me what I should fill it with!

Lay off the breast beating- it's too much like the last 13 years of labour.... 

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By Bob Harper
06th Mar 2011 22:30

Product development

@memyself-eye - I appreciate you may not want Hotpoint to tell you what to put in your fridge but you may buy one of 12 other products they have on their Website and accountants can do more than compliance.

Interestingly, the Hotpoint product designer defines good design as a work that marks a step forward or a significant difference with respect to what we already have. As I see it, Steve is bringing new product to the profession.

With technology doing more, being smarter/easier to use and outsourcing plus increased competition (and the likelihood of simplification of compliance) then if accountants do not widen their service range then what exactly are they all going to do?

Accountants own the "business finance" category but there is a lot more in this category than churning out accounts and tax return six months after the year-end.

Bob Harper

Portfolio Marketing 

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Steve pipe
By Steve Pipe
07th Mar 2011 10:43

To memyself-eye

With respect, I think your comparison with Hotpoint misses the point

When you buy a fridge you don’t want advice on food because as the customer you already have all the expertise you need to make good food choices

But when a client buys our services they typically do NOT have all the expertise they need to make the right tax planning choices. So they rightly and properly look to us for help in that area.

As I see it the facts are simply these

Clients want us to help them pay less taxWe therefore have a professional duty to help them do soHow can it therefore be “wrong” (or as you describe it "tosh") to try to do so?Surely what would be wrong is not to do everything we can to try to help them in this way

This article is about raising service levels in ways that all the research (and common sense) tells us we should.

How can that be “tosh”?

And the acid test is this...

If you really think it is not your job to do the things in the article, presumably you would be happy to publicly say this to your clients:

 “There are some extra things you can do to greatly reduce your tax bills, which together could put tens or even hundreds of thousands of pounds of extra cash into your bank account over a number of years. Some other accountants will help you to do those things, but we don’t (perhaps even adding “because we think it is tosh”). We have decided not to help you get that extra cash since we believe that is not our job. That’’s OK with you isn’t it?”

And if you did say that, what would your clients say in return:

“Yes, that’s OK – if you don’t want to help us pay less tax we don’t mind, and are happy to pay more tax than we need to”, or“No that’s not OK” – and perhaps even “I’m switching to an accountant who will help me in these ways”

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Mark Lee headshot 2023
By Mark Lee
07th Mar 2011 13:38

Full marks for NOT scoring 4 out of 4

 I have long admired Steve and his undoubted commitment to the accountancy sector especially in terms of helping accountants to become more profitable and successful.

On reading this article though I felt the need to question the legitimacy of his remarks re 'service levels' and the fact that over 90% of accountants do not score 4 out of 4.  In my view this is a reflection on the questions, not on the accountants.

I am very pleased to see how few accountants score "4 out of 4" as the headline advice in this section of the article seems to ignore a number of practical points.  I note that these are just sample questions and that Steve's research suggests that few accountants score full marks regardless of the tax issues he lists when asking the question. But as these are the ones he has include din the article, these are the ones on which I have commented.

With tax credits for example, it is no surprise that few accountants can do as suggested above and produce for all clients: "a robust estimate of the full amount that they are entitled to claim over the next few years"

- To do this accountants would need to know more about their clients' personal circumstances and household income than will be on their files. And as for the 'next few years' - none of us have a crystal ball re the impact of the new universal tax credit.

On the subject of 'incorporation' I fear, tho I may be mistaken, that Steve is advising accountants that it's ok to 'guesstimate' a goodwill figure despite few accountants having the necessary experience to do this alone (and remain compliant with the Guide to professional conduct). Also a decision whether to incorporate should take account, not just of the current tax rules but also of prospective changes in the tax regime. It is only since June 2010 that the tax rules appear to now favour operating through a company rather than as a sole trader or partnership. How long will this last and will the tax cost of reversing the process be acceptable to the client?  There is invariably more to the equation than simplistic comparisons of headline tax figures based on forecast accounting profits.

It is also hard to agree with the implied advice about change of year ends unless also factoring in the client's tax reserving policy and how the final tax bills will be funded when the busines ceases or is sold. Short term benefits may be secured but accountants would be doing their clients a disservice if they focus on these in isolation.

So, regardless of the other admirable advice in this article I applaud those accountants who avoid getting caught out by loaded questions. I am pleased that there are plenty of accountants who know sufficient about the detailed tax rules to avoid getting sucked into spending a lot of time exploring ideas that will, in the event, benefit few of their clients (beyond those with whom the ideas have already been discussed/actioned).

Having said this I also agree with the thrust of Steve's message that many accountants fail to offer all their clients the full range of advice which might be appropriate. There is a tendancy to feel that one knows one's clients and that offering ideas for tax savings that they will not want to pay for is counter-productive. I am reminded of the old adage: 'When we ASSuME, we make an [***] of U and Me'. I'm sure plenty of accountants DO miss out on additional billing opportunities that would flow if they were more generally pro-active in their advice to more of their clients.

Mark

www.BookMarkLee.co.uk

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Steve pipe
By Steve Pipe
07th Mar 2011 14:57

In reply to Mark Lee

I also agree with the thrust of Steve's message that many accountants fail to offer all their clients the full range of advice which might be appropriate. Mark Lee

Thanks Mark, that is the point I was really trying to make.

So thanks a million for supporting me on that jugular issue

To me that point is infinitely more important than the specifics of the tax advice in question – as I said in the article, the four I featured were merely illustrative examples to allow me to make the above point. They are certainly not the last word in tax planning. And I have always been the first to admit that since I am no longer in practice my tax knowledge is rusty.

Even so, let me clarify what I had in mind with the questions, using incorporation as an example:

1 - The accountant uses the most up to date profit and drawings information to arrive at a preliminary estimate of the potential to save tax by incorporating

2 – The accountant arrives at a guesstimate of the goodwill value based on his knowledge of profits, the market and some brief desk research – and uses this to produce a preliminary estimate of the potential to save tax by capitalising goodwill

3 – The accountant does  much the same to arrive at a  preliminary estimate of the tax credits they may be able to claim (harder at the moment I acknowdge because of the uncertainty over future rules, but no smilar excuses applied in the past when many accountants failed to do this) 

4 – The figures in Steps 1-3 are then extrapolated and combined, usually on the basis of “other things remaining equal” – and any other jugular technical considerations are factored in as best as possible

5 – The resulting estimate is what I meant in the article by a “robust” estimate – ie it is far more useful than a back of the envelope number, or a figure plucked from mid air  - but nevertheless  falls well short of the full technical analysis we do when the client ask us to move to the next stage

6 – Armed with this figure I believe we should then say to the client “Based on our preliminary estimate it may be possible to save you £X in tax over the next N years by incorporating etc . But obviously there are no guarantees at this stage, the £X is only a ball park figure based on our preliminary calculations, and there are a lot of thorny technical issues that need to be fully factored in to a full analysis. Even so if gives you an initial indication of how much extra cash you may be able to get. Is that something you would like us to do some extra work to explore in detail for you?”

If they say yes, then you simply have to agree the extra fee for the extra work – a fee large enough to cover all the technical nitty gritty you so rightly point out need to be dealt with in the full analysis.

To me that is great service.

And to my mind that is what clients deserve.

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By Cirius di Lemma
08th Mar 2011 11:42

Now I know what one looks like.

I'd never seen a lead balloon before!

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By petestar1969
08th Mar 2011 13:37

Keep em coming Steve...

I love it when I read stuff from accountants who just don't have the nuts to view their firms like businessess and run them accordingly.

Peter (from Meades)

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By Nick Stewart
08th Mar 2011 13:54

Flippant comments

It never ceases to amaze me how many flippant comments are made (often by the same respondents).

I have known Steve Pipe for a number of years, and whilst I certainly don't agree with everything he has to say or the way he says it, many of his underlying messages, including this one, are spot on.

I've always thought that if you haven't anything constructive to say, then don't say it.

 

 

 

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By ireallyshouldknowthisbut
08th Mar 2011 16:08

hmm
Nick, whilst the underlying message (ie give proper advice to clients, dont just drill out a set of accounts) is sound and is what any self respecting accountant ought to be doing.

I think what gets up peoples noses is the tabloid approach.  Ie make up a fake headline to grab your attention, and then sell hard by rubbishing what you are doing and attempting to make you feel insecure. Its prett naff and better placed selling washing powder quite frankly.

The claim that 90% of accountants don’t run their businesses properly is of course as much tosh as those other claims about businesses running at a loss achieved by the misapplication of medium sized firms remuneration to sole prac's...

The vast majority of practicing accountants come across as peers (as opposed to the ones we take work off, you tend to be poor, or we wouldn’t be taking on the work in the first place) actually seem to do a pretty good job to me.

The other issue is Mr Pipe is generally not talking about micro one and two person clients and practices which seems to be the world inhabited by a fair chunk of the posters on Aweb, but about multi partner firms dealing with larger enterprises.  "Bigger business" approaches which might be sensible when talking about the cab firm are plain daft when applied to the cabbie.

 

 

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