Art of Accounting: Some clients I dropped – Accounting Today

I never thought dropping clients was a good strategy. How could I grow if I dropped clients? Well, there are many who feel it is necessary to drop clients as a way to improve their practice. I disagree.

Running an accounting practice is a business and when a business gets busy, you add resources or capacity to handle that business. Either you hire more staff, outsource the work, or find a way to do it more effectively or by using technology. If you get overloaded with work, dropping less profitable clients or those who do not fit into your practice model looks attractive, but I feel as long as those clients are paying their bills, why would you want to divest yourself of revenue and cash flow?

I understand the pressures of being overloaded with work, but that doesn’t usually occur overnight; it creeps up on you. Some suggestions are to be more selective in accepting clients, review your inventory of work in progress and reassign it, make new delivery commitments, or decide what is not necessary to be done. However, I do not want to get involved now in discussing workflow, so let’s get back to the issue of dropping clients.

Here are some examples of clients I have dropped:

• Periodically we established minimum fees for individual tax returns and a number of very low-fee clients were let go. What we did was make arrangements with a couple of local accountants to take on those clients at the fee structure the clients were at. When I called the clients to inform them of our increased fees, I also told them that if they want, we will transfer their files to Mr. or Mrs. Soandso and here is their contact info. If they give the word, we will forward the files. I also assured them I would be around if they had any questions or problems they would ever want to discuss.
• We thought about raising our minimum fixed fees for bungled business clients, rather than drop them. However, when we told them of the new fees and said we would ease them into it over three years, it was pretty much accepted and we really did not lose any business that way.
• We got into the habit of increasing our fees every year across the board for most clients. However, if a client was really doing poorly, we did not increase their fees. However, sometimes a client complained about the continuous increases and objected to them. Based on their situation and relationship, we either pushed back or held firm. I remember losing one client this way. I let her go because, while she was a nice person, she was also a very needy client who consumed much more time than necessary, which I tolerated, but then decided that our increases were warranted and necessary and we let her leave.
• One time I lost my cool. I got a new client who owed a huge amount of unpaid withholding taxes to the IRS and it took me quite a while to work out a five-year payment arrangement. I was also very proud of the result. A month or so after that, I noticed a big check in the business account and asked him what it was for. He told me it was a down payment on his daughter’s wedding, which was going to cost about double what he owed the IRS. It made me feel I wasted my time helping him with the IRS since he clearly wasn’t going to get out from under, and told him I did not want to be his accountant anymore.
• I had a business client that was in the process of filing for bankruptcy. I noticed my neighbor was listed as a creditor for a relatively small amount. This neighbor was a nice man with a small business who just managed to make ends meet, but not much better. When I mentioned to the client about that neighbor, he told me that “not getting paid was a risk he took being in business and it was his tough luck.” I dropped him.
• A client whose wife was a serial caller would call every half hour until she spoke to me. This was in the days when we had a receptionist answering the phones. One time during tax season when she called, she was told I would be in meetings until 3:00 and I would return her call then. Well, she called around 10:00 and then 10:30 and then 11:00 and 11:30 and then noon, at which time the receptionist was very upset and distraught and mentioned to me about the continuous calls. I told her to put her through the next time she called, and I told her she could pick up her paperwork since I no longer wanted to deal with her and if she didn’t pick it up by 5:00 I would be charging her storage at the rate of $15 per day until she picked it up. I also told her I told my receptionist to immediately hang up if she calls again.
• I have a few more such stories, but each one was about a person I really did not like or did not want to deal with. I sort of developed a “No Jerk Rule.”
• I also have some stories about clients who were doing things that I did not think were legal and dropped them as soon as I found this out. Those situations were no-brainers where no decision needed to be made. No regrets on any of those.

My suggestion for accountants who are overloaded with work is to add staff, slow up the client acceptance process, and/or try to figure out how the work could get completed in a more effective manner. Adding overtime (when it is not during tax season) is also an option, but I suggest you pay for that added time.
There could be a time when you want to transition your practice into a different practice area, and that might be a legitimate business reason to drop clients. But transitions usually are accomplished over some time so there should be no rush to drop cash flow. Sometimes it is necessary to prune some clients who just do not fit in or are consuming too much energy, and that is OK; just make sure you’ve got your reasons right for doing it.

However, considering clients as “unprofitable” is a subjective issue and maybe a judgment call. Dropping clients is reducing cash inflow without an offsetting reduction in costs. No matter how “low” the fee is for a particular client, it is added revenue without any added costs for that revenue. When you drop that client, you lose all of the cash flow that client was providing.

There are always exceptions to everything, and there are times when dropping clients is the perfect strategy. However, I do not think it is an advisable strategy on a continuing basis.

Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People list. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” He also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. He is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where he shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. He welcomes practice management questions and can be reached at (732) 743-4582 or emendlowitz@withum.com.