Find value in letting clients go

During the COVID-19 pandemic, CPAs worked diligently on behalf of their clients and, in many cases, formed tighter bonds with them. If their clients owned businesses, they may have helped the clients obtain Paycheck Protection Program loans or counseled them through difficult economic times. But the pandemic also caused CPAs considerable stress and caused many of them to rethink their firms’ policies and procedures. Some firms are considering cutting down on the number of clients they serve, as a way of reducing strain on staff, increasing profitability, and making sure their clients align with their strategic objectives.

Letting clients go can be difficult during the best of times, but it can be more painful for CPAs to cut ties with clients they’ve guided through a challenging period in history. Some CPAs can be reluctant to let go of clients, even those who are difficult, because they fear they won’t make up the money they’ll lose or because they don’t want to hurt clients with whom they have a long-standing relationship.

But CPAs who regularly evaluate their client roster often say that letting go of the most problematic, demanding, or time-consuming clients allows the firm to take on new clients that are a better fit and bring in more revenue. And it should be even more of a priority in the wake of the pandemic, said Bill Pirolli, CPA/CFF/PFS, CGMA, of DiSanto, Priest & Co.

“Be careful not to let long-term relationships or your desire to help make you go too far,” he said.

As his experience shows, letting go of clients, if it’s done with care, can benefit both them and your firm. A few years ago, he and fellow partners at the Warwick, R.I., firm opted to end their relationship with one of their most loyal but time-consuming clients. The client was growing at a fast clip, and Pirolli knew the firm was stretched and could not meet the client’s needs as well as other public accounting firms that specialized in the client’s industry. He sat down with the owners and told them just that: They would be better off with someone who knew their industry inside and out. His partners were “freaking out,” he said, because that client represented $180,000 of annual revenue.

But after they parted ways with the client, the firm was able to quickly make up the revenue and then some. The client reported back that they were thrilled with their new accounting firm. It was a positive outcome for everyone involved.

Jamie Yoo, a risk control consultant with CNA, an insurance company that provides professional liability policies for CPAs, observed that the advice her organization provides to CPAs around evaluating and terminating clients has not changed in the wake of the pandemic. “Remaining diligent in critically evaluating potential or existing client relationships has become even more important,” she said. Whether or not a client may be struggling financially, “CPAs should objectively assess whether the client is still the right fit for the firm and the service and that they still understand and accept their responsibilities,” she said.

ASSESS YOUR CLIENTS

The months that follow busy season can be an ideal time to evaluate clients and make plans to part ways with the ones that are no longer a good fit. The first step is to take a close look at where your practice is, and where you want it to go, before getting ready to cull your lists, said Carl Peterson, CPA, CGMA, vice president—Small Firms with the Association of International Certified Professional Accountants’ public accounting division.

Then take a look at your existing clients and assess whether your arrangements with them are working well. The AICPA Private Companies Practice Section (PCPS) offers members a Client Evaluation Tool that can help with this process. Some clients will be easy to identify as problematic (see the sidebar, “Types of Clients to Trim”).

But don’t overlook clients that have been with you for a while and are pleasant to deal with but whose needs aren’t a fit with the firm. Oftentimes, firms will have clients on their lists that they took when they were just starting out. But after they have grown, they find these clients can be roadblocks.

“When you start out, you do everything for anybody,” Peterson said. “But if they aren’t helping you grow your firm and your practice, they should be on that list [of clients to fire] as well.”

Use your revenue and billing numbers to guide you and crystallize which clients required significant time that wasn’t billable, or that didn’t boost your bottom line enough to help, said Rosemary Lamaestra, CPA, of Regan, Levin, Bloss, Brown & Savchak PC in Allentown, Pa.

After busy season ends, she pulls up three years of data and compares her time statements with what was billed, to spot unproductive relationships. For example, if she spent 10 hours on a client but was able to bill for only three, that might be a client she would choose to let go.

Consider the nonfinancial aspects of a relationship with a client as well. If you or staff members consistently dread interacting with particular clients or have to spend time afterward recovering from frustrating meetings with them, think about letting them go, said Micah Fraim, CPA, of Fraim, Cawley & Company in Roanoke, Va. Keeping the relationship going isn’t helping either of you, he said.

“If we’re drained after dealing with them, it’s unlikely that we’re going to be giving them the same results and service as we would someone else,” Fraim said.

The stress sparked by the pandemic over the last year makes the need to evaluate your clients even clearer, he said.

“That stress only further decreases the amount of energy and ‘mental calories’ we have available to us,” Fraim said. “To me, this only reinforces the need to let go of clients who are not a good fit.”

Another way to identify problem clients is to ask your staff. Administrative staff or less senior CPAs in firms who have more face-to-face contact with clients almost always have a good idea of where the problems are, Peterson said. Reach out to them and ask them what their experiences are.

“Empower your staff people,” he said. “The staff knows who should be terminated.”

TACTICS TO TAKE WITH PROBLEM CLIENTS

Once you’ve decided a client isn’t a good fit, think about how to follow up. Not all problem clients will need to be let go. One initial step Fraim takes is to consider whether there’s a way to work with clients to overcome the issues they are facing. If the issue is that a client is always late with documents, for instance, have a direct conversation with them about how important it is to the firm for clients to adhere to deadlines, he said. Make clear that, if it doesn’t happen, the relationship may end. In some cases, you may be able to assist by taking on accounting services for a small business client or pointing them to resources to get their files organized and ready in a form your firm can use.

If a client is taking up more time than what you’re billing, notify them that you will be increasing your fees and explain why, Fraim said. Often, hearing that is enough to send a client away. “The vast majority of time they leave of their own volition,” Fraim said. “They say, ‘Oh, I’m not paying that,’ and it’s their choice to leave at that point.” Or they may decide to stick with you and pay the increased charges, and you’ll be fairly compensated for the work you’re doing.

If the issue is that a client is no longer a good fit for your firm, you may refer them to a firm that is better able to suit their needs, Peterson said. Yoo recommended offering references for more than one firm “to avoid the risk of a negligent referral claim.”

Having an exit plan for clients in good standing helps assure them you’re still thinking of their best interests, Pirolli said. “No one is getting sent off to the abyss,” he said.

But if you are parting because the client is problematic, revisit whether providing help or a referral would be beneficial to the organization you’re referring them to, Yoo said.

Relay the decision to terminate the business relationship in writing, and keep it professional and succinct, Yoo said. Provide clear communication that outlines the services that were provided to the client, the effective date of the end of the client-CPA relationship, and specific instructions regarding items for client follow-up, such as outstanding accounting or tax matters and deadlines. Be sure to return any client-provided original documentation and bill for any outstanding fees, she said.

The PCPS offers a sample termination letter at aicpa.org for its members.

If you have any professional liability concerns, contact your insurer, Yoo said.

LETTING GO TO MAKE ROOM

Though it can be uncomfortable to fire clients, it helps to realize that once you let go of them, you’ll be on your way to growing your practice in the direction you want. When you drop problematic clients, or those that aren’t good fits, you are making room for new opportunities, Lamaestra said.

“This is a business,” she said. “You have to put your personal feelings aside.”

Pirolli finds that those who come from more of a business development role in the firm grasp this concept faster. Free yourself up, he said, and the work will find you.

“You’re making room for a client that fits the staff you have, the direction your firm is going in, and your strategy going forward,” Pirolli said.

Types of clients to trim

There are various reasons you may want to fire a client. When you evaluate your client list, consider the following types as candidates to part ways with:

Clients who aren’t worth the moneyThese clients take too much of your staff’s time without an arrangement to compensate it. Bill Pirolli, CPA/CFF/PFS, CGMA, of DiSanto, Priest & Co. in Warwick, R.I., gave an example of a divorced couple he had worked with for years who still owned a business together. The clients had difficulty communicating with each other, and frequently his staff had to help reconcile their differences, taking a great deal of energy and time away from other projects.

Clients who have bad attitudesThink about firing clients who haggle over every line item, rudely interact with your staff, make unreasonable demands, or consistently challenge your tax advice. Rosemary Lamaestra, CPA, of Regan, Levin, Bloss, Brown & Savchak PC in Allentown, Pa., has let go of clients who always questioned her advice and wanted her to approve unwarranted tax deductions. She told them if they weren’t open to hearing her expert advice, then she wasn’t the CPA for them.

Clients who are serial procrastinatorsConsider dropping clients who always come in at the last minute or miss clearly defined deadlines for providing documents. Such clients often have disorganized information as well, meaning staff must spend additional time getting things in order.

Clients who end up being too big, or too small, a fishSome clients are great on most fronts — they’re pleasant to deal with and meet deadlines — but require a level of work your firm struggles to provide, and prevent you from exploring other growth. Or their needs may be too simple for what your firm offers. For instance, they may be legacy clients who require only annual tax help while your firm has moved on to a different niche.

About the author

Sarah Ovaska is a freelance writer based in North Carolina.

AICPA RESOURCES

Articles

• “How to Deal With Last-Minute Clients,” JofA, Sept. 2019
• “Good Clients, Bad Clients: How to Manage Them All,” JofA, June 14, 2017
• “Professional Liability Spotlight: Take a Hike: Ending Client Relationships,” JofA, Feb. 2017
• “Got a Few Challenging Clients?” CPA Insider, Aug. 22, 2016

Online resources

• Client Disengagement Letter (free access for PCPS members)
• PCPS Client Evaluation Tool (free access for AICPA members)