It is important for strategic advisors to concentrate on the big picture. However, sometimes we need to get “anal” and look at the details. For me, that time is when I am preparing a proposal for a new engagement.
Many accountants think of engagement letters and proposals as a necessary evil. I think of them as a way to define what I will be doing, the value to the client, how much I will charge for my services, how I want to get paid, and under what circumstances the fee would be increased.
Scope creep is a ubiquitous threat. I know from my experiences that if I do not clearly define what is included, I will have a problem later if my services need to go beyond what was originally “contracted.” The problem will come when I need to inform the client of the added services and their price. Whenever this is done, either before I do any of the added work, or after I’ve completed performing it, I will have a problem about the fee with the client. That’s life and shouldn’t be a surprise to anyone.
I figured out a long time ago that if I laid the proper groundwork, it’s much easier to approach the client with this “bad” news.
Many people rush through proposals wanting to get them out quickly, but they use a “ready, fire, aim” mentality rather than a more deliberate “ready, aim, fire” approach. I wholeheartedly recommend getting them out quickly, and giving proposals priority, but I also recommend a very careful approach to make sure everything that needs to be done, should be done and might need to be done is considered. That takes time and thought. If you’re too busy with current work to get a careful proposal done quickly, then perhaps passing on it might be the better course. Otherwise, make the time.
An approach that works for me is to list everything I think should be done on a spreadsheet and estimate the time each step will take. By using the spreadsheet, I am able to insert things I initially overlooked and delete things that are beyond the scope of the assignment (or I could move them to a section of added services for another time). It is how I deal with these items that can make or break the engagement after it gets started. I then add up the time and, after I apply a price per hour, I get an idea of the project’s scope and a ballpark amount of the potential fee. I am not using the time determined price as the sole criteria for the price but that amount factors into my ultimate decision.
I then try to determine a few things:
- Will I have the time to work on it given necessary deadlines for its completion?
- Do I have adequate staff available for this engagement?
- Will my “time rate calculated” fee be reasonable for that assignment?
- Is the client able to pay that fee?
- Will the client be willing to pay that fee for these particular services?
- What is the value to the client of this project being done at this time using the expertise and experience that I have and will bring to them?
- If my perceived “value” to the client is less than that amount, would I be willing to accept that assignment at a lower fee, or should I pass on it? Note: There have been situations where I was willing to get the client at any fee in order to get into that service or industry, i.e., to get my first client for that. There were other times that I wanted a critical mass in a particular service so I could go after larger clients in that space or get a staff person certified in that service area. I also might make concessions in the price based on my other work with that client or the potential for added work, or the family tree of that client. I also have taken low-price work when I had available time with no added cost necessary and the dollars received went straight to my bottom line. This is a subjective business decision. I’ve been doing this a long time and usually my instincts are pretty much on target. However, I prefer turning down work if I think the client won’t see it as a valuable service and be appreciative of what we did.
- What is the availability to the client of other accountants or professionals to perform these services?
- What is the client’s experience with this type of engagement?
- I would then determine a fixed fee to propose for the engagement. I try to not quote time-based fees unless there are particular circumstances that demand this arrangement. Note that every fee is a value price since clients always consider the value of what they are getting versus the cost.
Since I will quote a fixed fee, I need to be careful to cover everything I would do and what the client’s responsibilities are in providing information to me and other necessary cooperation. I also need to be super deliberate, i.e., anal, in including in the proposal what is not covered and what situations would warrant additional charges. This is where scope creep could either “kill” me or provide me with added opportunities.
The bottom line is to be particularly anal in analyzing the project and what needs to be done. The more thorough you are, the better result you will get, the less confusion about fees, services or intended results, and the happier the client will be.
Proposals are opportunities to develop your practice while providing clients with value-laden services at cost effective prices that generate added profits for you. What is so bad about this?
Do not hesitate to contact me at email@example.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 firstname.lastname@example.org.