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By: Nancy Reimer
The end of tax season is an opportune time for certified public accounting firms to review their client roster to ensure existing clients are a good fit with the firm’s mission and culture. CPA’s are taught to exercise due diligence when accepting new clients. For example, a firm will assess whether it has the required knowledge and skill to perform the work, whether the client’s expectations are reasonable, does its management team exhibit integrity and trustworthiness, had the client changed CPA’s often, is it negotiating down the fee, hesitant to pay a retainer, is the client delinquent in filing or does the client keep its records in poor condition? If satisfied with the answers, a firm will accept the client.
Once clients are in the door, however, should they stay? Is it difficult to get information timely from the client, does the client haggle over fees, fail to pay, act abusive towards staff, fake or inflate numbers to avoid tax payments or penalties, lack proper internal control or consistently fail to follow advice?
What about changes in the firm that may make servicing the client difficult? New technologies may make it difficult for certain clients to keep up, some clients may not be comfortable with online organizers and electronic engagement letters. Perhaps there is a staff-turnover losing technical expertise to perform certain services; or the cost of offering a service may outweigh the revenue generated by the service.
Firms should meet on an annual basis to review the direction of the practice and the client roster. It should determine how many clients it can comfortably serve, what services it performs best or at the highest rate of profit and the profile its ideal clients. Problem or “toxic” clients should be terminated.
Once a firm has determined which clients it needs to terminate, it should devise a strategic plan for doing so. It is always a good practice to notify the firm’s insurer and liability carrier of its intent to terminate clients. Liability insurers may want to be informed of potential claims if a disgruntled client is terminated. Insurer’s loss prevention teams are experienced in terminating clients and may offer advice as to how to disengage a “problem” or “toxic” client.
Best practices dictate a disengagement letter sent by certified mail, return receipt requested is the best way to terminate a client. If, however, the client has formed a close personal relationship with a member of the firm then a face to face meeting may be warranted. Then a follow-up letter documenting the meeting should be sent.
Prior to notification, the firm should ensure all required documents are copied or scanned, all documents and authorizations are signed, all fees are paid (if possible) and all client documents are packaged and available for pick-up. Also, prepare the transfer authorization letter ahead of time for the client’s signature so the file can immediately be transferred to the successor CPA.
The disengagement letter need not identify any specific reason for the termination. Ideally, there are no impending, or tax filing, deadlines. If there are the firm should list those deadlines and what needs to be done to comply with the deadline. It is also a good idea to list all of the services the firm had performed for the client. If any projects are in progress, identify the stage of the project and what is necessary for completion. The disengagement letter should identify the client’s responsibilities moving forward and issues to be addressed with the successor CPA. Finally, the firm should state it will assist in transferring the files to the successor CPA in accordance with the firm’s professional obligations.
If you have any questions or would like more information, please contact Nancy Reimer at firstname.lastname@example.org.