The first time I developed a CPA practice years ago, client quality had little affect on my decisions to accept new clients. A local banker sent me new clients regularly and, to keep the stream flowing, I served them all. Because I was young, smart and well-trained (and not the least bit prideful!), I believed I could whip any unethical or dishonest client into shape!
Several of my banker’s referrals proved me wrong. One sued me! I’ll spare you the sad story only to say this client was a liar and built his success at the expense of his employees. At the trial he lied and I paid, well, actually my insurance company paid.
br/>Two other clients referred by my banker friend later went to jail! One for skimming and perpetrating sales tax fraud (I don’t know if the IRS ever found him). The other client I thought I could handle owned a lot of nursing homes; he was eventually convicted of Medicaid fraud (family members on many payrolls). These clients contributed to my revenue growth but I spent more time trying to catch these clients in their illegal acts than I did serving my good clients! And guess the character of other clients these criminals referred to me!
Most CPA firms’ client portfolios represent clients developed over many years. Time, especially hard economic times, affects the behavior of our clients. People change, some for good and some for bad. A participant in one of my CPE seminars said it this way: “Desperate times cause desperate people to do desperate things!” Thorough, annual client acceptance and retention evaluations are crucial to the success of a CPA firm, now more than ever before!