Just Say No to Costly Clients

The way to a quality practice is through quality clients.

  • SEPARATING BAD CLIENTS FROM YOUR FIRM is not as easy as picking up the phone and telling them they must find a new CPA. First, you must clarify your firm's long-term goals. Second, you must decide which clients will be most profitable as your firm prepares to meet its goals. Finally, you must determine the best way to inform your potentially unprofitable clients that they would be better served elsewhere.

  • PRACTITIONERS HAVE TO DECIDE WHAT they're good at—what they really like to do. After they determine those two things, it is much easier to look at clients and say, "You take up too much time."

  • DEAL WITH THE PROBLEM CLIENT in a courteous and straightforward manner. While some techniques, such as not returning telephone calls or raising fees, might succeed in driving your client away, they might also damage your reputation among people who are good prospects—dissatisfied customers tend to tell many people about a bad experience.
  • THE BEST WAY TO AVOID COSTLY CLIENTS is never to let them become clients at all. It is helpful to have a set of specific criteria by which to judge whether to take on a new client. Many firms use checklists to evaluate the business potential of prospective clients.
ELIZABETH DANZIGER is the president of WorkTalk, a West Los Angeles-based company that offers writing training and consulting services to financial professionals. She is the author of three books and numerous magazine articles. She can be reached by e-mail at lizd@worktalk.com .

ccentuate the positive, eliminate the negative." These are lyrics to live by if your firm has clients who cost you more than they could ever pay. A costly client is one who detracts from your productivity, profitability or peace of mind, and he—or she—should be mustered out of a survival-minded CPA's client base.

The costliest clients are those who don't pay their bills or who pose high litigation risks. Unpleasant clients also take a toll on your staff's morale. Even worse, they tend to reproduce—by referring others like themselves. Difficult clients can cost you indirectly, too. The time you spend on an unprofitable client is time not spent on a profitable one.

For many CPAs, the idea of turning away business is nothing short of heresy. CPAs traditionally have learned to live with their costly clients. However, more and more managing partners are discovering the benefits of winnowing their firm's client base as a practice management tool. These CPAs are divesting those clients whose business does not help the firm reach its long-term strategic goals.


Separating unsuitable clients from your firm is not as easy as picking up the phone and telling them they must find a new CPA. You first must have a clear picture of your firm's long-term game plan. Then you must decide which clients will be most profitable as your firm prepares to meet these goals. And, finally, you must determine the best way to inform inappropriate clients they would be better served elsewhere.

The first step in identifying which clients you might be better off without is to consider your strengths. What are you best at? What industries are you best qualified to serve? What do you want to specialize in? The client who is a waste of time for one firm might be a welcome addition to a firm with a different focus.

According to Janet Caswell, a CPA and consultant based in Bloomfield Hills, Michigan, "Practitioners have to decide what they're good at—what they really like to do! After that it's easier to look at clients and say, 'You take up too much time!'"

Caswell stresses the importance of leveraging knowledge effectively. "If you've worked for several printing companies, then you've already climbed the learning curve in that industry. Build on that knowledge by looking for more clients in your target industry."


When you are clear about your professional strengths and goals, it's time to take stock of the intangibles that contribute to making a client too costly to retain. A customer whose constant complaining drives you to an early heart attack is not worth any amount of money. Be candid with yourself about how much stress and aggravation you're willing to put up with. How much is it worth to you to force your staff to endure stress and aggravation? How long are you willing to continue providing services for a client who is always behind on bills? This may be basic, but it is a common problem among CPAs.

"You continue to do the work, thinking that if you get their affairs in order they'll pay. But that is not always the case. They'll just move on to the next CPA after they've bled you dry," says Caswell.

Set an outside limit on past-due bills. You will find it a lot easier to let a client go if he or she habitually pushes you beyond the limit.


Beware of clients who

* Frequently complain about price.

* Have changed accountants several times in a few years.

* Have key employees quitting in large numbers.

* Are testy when questioned about their business practices.

* Are rude to your staff.

* Are the accounts on which none of your people wants to work.

* Cause you stomach or chest pain (however vague) every time you think of them.

You likely will find that about 20% of your clients generate about 80% of your profits. These are the positive ones. Identify them and treat them well. In his book The Streetcorner Strategy , (Bard Press, Austin, Texas, 1994) Robert Hall suggests classifying clients as A, B and C clients. Your A clients have business needs that match your professional strengths, pay on time and are pleasant to deal with. B clients have some characteristics of your As, but to a lesser degree. And your C clients are the ones who demand a lot, pay late and then complain. Hall, who spent six years as a consultant for Arthur Andersen, suggests you divide clients into A, B and C groups in terms of current profitability and growth potential.

Hall also recommends looking at big-picture factors such as growth potential when you categorize your clients. Someone who is a C client today may have A potential. So it is important to consider all the ways in which such a client might turn out to be profitable. Is his or her business likely to grow? Could you get additional consulting or tax work from the client or his business? Does this person have good referral potential? "A client who doesn't pay much in money might offer significant dividends in referrals, in prestige or in industry expertise by helping you penetrate a new industry," says Hall.

In addition to considering the current and long-term value of the customer, CPAs should consider the cost of going out and getting a new customer. According to Hall, you have "sunk costs" into developing a customer relationship, so you must think long and hard about whether to divest yourself of the investment he or she represents.

Also look at indirect costs such as stress and wasted time. As Barry Weisman of Edward Isaacs & Co. in New York City says, "Many firms tend to look at the cash collection, not the efficiency." Perhaps a client generates large fees but also creates frequent emergencies because of his poor planning. If this person also speaks to your staff in a contemptuous tone, leaving them fuming instead of working, and then pays you 60 to 90 days late, that large fee may not really compensate you for your lost time and energy.

After conducting your client assessment, you will find that some clients have neither the current nor the long-term potential to warrant continued inclusion in your practice. Review your client list at least once a year to see if clients have changed categories.


After you have established clear goals for your practice and have identified which clients you should part with, you must determine the best way to say good-bye. Some CPAs do this passively: They stop returning phone calls or make themselves unavailable whenever that client wants to talk. Some CPAs simply raise their rates for that client through the roof and hope he or she goes away. While these techniques might succeed in driving your client away, they might also damage your reputation among people who are good prospects—dissatisfied customers tend to tell many people about a bad experience.

It is best to deal with the problem client courteously and straightforwardly. Give the client a sense that he is a partner in the decision to seek other professional services. According to Mike Bashey of Bashey & Co. CPAs in Bellevue, Washington, it is best to phrase your message in terms of your desire that your client have the service he or she wants. "We always put the onus on ourselves," says Bashey.

"We never fire clients," says Hope Igdalsky of Igdalsky and Co., in Manchester, Connecticut. "We counsel them out. We invite them to come in for a chat and then review the ground rules we had initially agreed on for our work together. For example, turning in paperwork on time, keeping the books up to date, making sure that their staff was prepared when we came in to do the audit."

Igdalsky adds, "After clarifying what some of the problems are, I ask them, 'What do you want to do? Do you want to try to get back on track, or would you like me to refer you to a different accounting firm?' We always try to remain friends."

No clients like to be fired—especially by someone they'd thought they hired! So do what you can to help each client save face, while making it clear that he or she needs to find a different accountant.

What to Say to the Soon-to-be-Former Client
"We've tried to abide by our agreements with you, but you are not permitting us to operate in the way that we must to fulfill our professional responsibilities. For example...[cite difficulties with the client, such as not providing necessary information, etc.] Perhaps it would be better for you to work with a different accounting firm. I'd be glad to give you several referrals."
"We don't seem to be communicating very well. Perhaps this is our fault, but it's very important to us that you be happy. I have several excellent colleagues here in the city with whom you might have a better rapport. Would you like me to give you their names?"
"We feel that we cannot serve you in the way you wish to be served. We suggest that you work with a different firm. Would you like us to give you a few referrals, or would you prefer to contact the local CPA society and ask them for names of other CPAs?"
"There seem to be ongoing problems with the staff members we've assigned to work with you. We've assigned several different individuals to your accounts, but tensions keep arising. I'm sorry we haven't been able to resolve these difficulties, but under the circumstances, I think it might be best if we referred you to one of the other accounting firms in the area."


The best way to avoid costly clients is never to let them become clients at all. "There are many clients who—if we really listen to our gut—we know there is risk to working with," says Caswell. "Maybe they aren't paying their payroll taxes, or they have a cash-based business and the numbers don't add up. If the client doesn't pay the taxes and you are perceived in any way as giving your client advice not to pay, you have a legal liability."

It is helpful to have a set of specific criteria by which to judge whether to take on a new client. Bashey & Co. uses a checklist adapted from a variety of sources. When considering a prospect, Bashey and his staff score the client on measures ranging from business potential to attitude toward staff. If the prospect scores below a certain level, the firm declines the business (see Bashey's evaluation form below).

Sample Client Evaluation Form  
Name of client __________________________________________

Partner/evaluator ________________________________________

Date ________________________________________

Circle only one number per heading.

Client's information

-2  Hopeless or always late

  2  Scattered but workable

  4   Needs training

  6   Good

  8   Excellent

Client's potential

-8  Terminating

-2  Decreasing

  2  Level

  8  Growing

15   Unlimited potential

Client's attitude toward IRS

   1 Neurotic

   2 Hostile

   5 Apathetic

   8 Wants things right

Client needs

   2 Bookkeeping

   5 Unaudited reports

  10 Certified reports

  12 Special services—estate, systems

  15 Big league—unlimited future

Collection of fees

-5  May never pay

-2  Always 90 days late

 5  Pays within 45 days

10  Pays when receives bill

Fee structure

- 5  Always complains "too high"

-2  Requires time and bill itemized

  5  Usually accepts amount of bill

10  Wants service and will pay for it

15  Thinks we are the greatest—pays premium

Source: Adapted from Bashey & Co.'s client evaluation form.


Client beats drum for us

-2  Never

  1 Would if could

  2  Not recently

  5 At times

 10  Every opportunity

Client wants

1  Minimum service (low fees)

2  Security from IRS

3  Counseling

4  Timely service

5  Direction & tax planning

Client's self-indulgence

1  Spendthrift

2  Stingy

3  Careful

4  Liberal

5  Controlled first class

Client's attitude toward our staff

1  Hostile

2  Lukewarm

3  Client acts like a friend

4  Client is polite and businesslike

Liability exposure

-20 Good chance of loss

-5 Possible

  2  Not likely

  5 Almost impossible

Total points________


Maximum = 100 points

Minimum =  -33

Below 30 points = Drop client.

31 to 50 points = Evaluate in 90 days (on probation).

51 to 70 points = Make an attempt to upgrade client.

71 points and above = Retain client.

Igdalsky and Co. follows a systematic approach to screening clients. "If someone calls and says he wants to use us, we spend 10 or 15 minutes on the phone to sound out what kind of business he has," Igdalsky says. "If he's in an industry we don't want to handle, we immediately refer him to another firm. We ask [ourselves] if we are qualified to do the work he needs and if we are truly interested in working in his industry."

After the initial phone interview, Igdalsky invites prospects to come into the office and meet with her and her staff for about 30 minutes. "We discuss business philosophy, expectations and the services they need based on our experience with others in their industry," said Igdalsky. By interviewing prospects in some depth before beginning to work with them, they can select the clients with whom they are most likely to develop a successful relationship.

No matter how informal your qualifying process is, any screening is better than none. Many industry experts agree that the single most important element of screening a potential client is to contact the previous CPA . Find out why this client is looking for someone new. "If he had a bad relationship with the prior CPA, I don't want to do business with him," says Caswell. "If he doesn't want you to talk to his former CPA, forget him." It may be that the former accountant became too busy to handle this client, or that he or she wasn't efficient enough to meet the client's needs—but it could also be that the client is a deadbeat.

Categories of Costly Clients
The Unsuitable Match
Perhaps you were once the perfect accountant for this person, but you've grown apart. This person's business needs do not match your business goals .
The Deadbeat
Begins by complaining about how high your fees are. Then he or she pays late, perhaps in partial payments, or—in the worst case—doesn't pay at all.
The Malpractice Suit Waiting to Happen
Wants you to push through the gray zones of your ethics and break the law on his or her behalf. He or she might insist that you accept figures without giving you access to the original books or might refuse to give you access to potentially important information.
The Complainer
Wastes innumerable hours with trivial—often unpleasantly expressed—complaints.
The Firefighter
Everything is an emergency to this person. He or she dashes into your office a few days before a tax return is due and throws a bunch of yellow pads on your desk, demanding that you drop everything and finish his or her work now.


There are no absolute criteria for determining which clients to cultivate and which to release. Only your judgment can decide that, based on your analysis of your own business goals and personal values. You may feel a flicker of fear at the thought of letting go of any paying customer. Remember, though, that when you stop spending time on unprofitable, unpleasant clients, you free yourself to serve your best clients better. You are letting go of something that is costing you profit and peace of mind in order to pursue the work that you enjoy.


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