PracticeAuditRaising the stakes.

Raising the stakes.

Hiking up your fees is seen by many as a big risk, but Nick Hood explains how to do it and not upset your clients.

The perennial dilemma of putting up prices was highlighted recently when HJ Heinz announced an across-the-board rise of 6% in the recommended retail price of two staples of the British diet: baked beans and tomato ketchup. With inflation below 3%, this would have been a brave move by any business with less dominant brands or commercial clout.

For most businesses, raising prices is agonising. For accountants in practice, raising fees is no less sensitive, especially in the post-Enron world where the activities of the profession are under so much scrutiny.

In any case, clients have been exerting downward pressure on audit and other fees for many years, since the profession – at all levels – discovered how to market effectively to other firm’s clients. Many of us seem to spend a large amount of time participating in ‘beauty parades’ to retain our best work.

I see two opposite ends of the spectrum among the accountants I deal with, particularly those who advise family-owned small and medium-sized businesses.

Some are providing a range of services, but sadly for a ridiculously modest reward, to the extent that it is hard to see how they can earn a decent income. If only they had more faith in the importance and value of their advice, they would be able to charge a better price for their work.

With others, a different picture emerges. These are the accountants who limit their involvement with clients to a basic package of accounts preparation and tax computation work.

A recent survey by the Cranfield School of Management highlights the dangers of doing this, confirming that only 40% of businesses would turn to their accountants for financial advice.

The clear lesson in this is that not only are these accountants missing out on potential extra fee income, they are exposed to a real risk of losing clients to other firms who offer a more complete service.

Unfortunately, the cost base for accounting firms is largely fixed, mainly in the form of staff, premises and insurance costs. Salaries go on rising inexorably, professional indemnity insurance premiums are iniquitous and there is constant investment in management information technology to be made. Unless equity partners are prepared to see their own incomes fall, something must be done.

The basic point is that accountants sell time and so long as the cost of that time (and supporting it) is rising, fees simply have to go up as well. If you can’t increase staff productivity, the only answer is to swallow hard and implement a rise in charge out rates and, consequently, a rise in fees.

Fortunately, there are a number of ways to limit your risk and avoid problems. Like all difficult news, the key is how you deliver it.

It is vital to find out first how your rates and indicative fees compare with your direct competitors or the market in general. You may discover that your rates have fallen behind so that you do in fact have some room for manoeuvre.

If that is not the case, think about sweetening the pill by, say, providing more certainty for clients by capping fees for those assignments where this is appropriate.

You must also ensure that you reassure clients that the firm will do all it can to be even more efficient to avoid any serious impact on their costs for audit, accountancy and tax services.

Next, identify your key clients and tell them face-to-face about the fee increase, rather than by telephone, email or worst of all by an impersonal letter, which presents them with a fait accompli. This should include not just those clients who represent the biggest fee income, but also those ‘rising stars’ who are the future major clients. This personal touch will demonstrate to clients how much their custom is valued.

The reasons behind the increase must be explained clearly, for example, the increasing cost base. Of course, there are other accountants they can turn to instead, but there’s a good reason why these clients are using you in the first place and this is highly unlikely to be just because your audit quotes are the lowest in town.

Personalities and relationships still count for a great deal and few clients want to go through the disruption of the inevitable learning curve with another firm.

Communication about the rise must be as efficient as possible. Partners must allocate sufficient time to the task and ensure clients are notified formally of the increases in writing to avoid any disputes in the future over fees.

Most of all, a pragmatic view must be taken about the problem. Clients may be lost, but the firm’s profits should still increase. It’s also an opportunity to shed marginal work.

One common feature of the struggling firms I advise is the ‘busy fools’ syndrome, where 20% of the work creates 80% of the profits.

Dealing with the demands of the other 80% distracts partners and professional staff alike, preventing them from doing more profitable work.

And surely there is nothing worse than slaving away as hard as we all do but only earning a pittance, especially given the ever-increasing professional risks in the harsh world in which accountants in practice work these days.

Most firms I deal with survive their crises and emerge stronger. Sadly some don’t make it and pay the price of failing to charge an economic fee for their work.

Clients understand commercial reality, provided they’re told the position straight. They may not like paying more, but most will live with it if the quality of the work justifies it. So we need to be brave, believe in the quality and cost-effectiveness of the services we offer and get on with negotiating a proper fee for what we do.

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