A Serious Disconnect With Clients and the Free Work They Ask I do for Themby
I have this serious disconnect with about 15 percent to 20 percent of my client base, and I don’t know what to do about it.
There's one client who I’ve had for many years email me, telling me his wife thinks that we have gotten too big for them and that they are paying too much for their tax returns. Literally, all I do is his companies’ tax returns. He has three S Corporations and his personal. One return is really simple, and the other two require a little more involvement.
I told him that his returns would be about the same as they were the year before — all of which require adjustments to his QuickBooks, which take about an hour to complete and I don’t even charge him for that work. He then remarks that my bills for a particular year were this, then went up to that. The difference was really a couple of hundred dollars. This guy’s adjusted gross income is $250,000, and he is upset over a few hundred dollars?
My wife says that I am pompous sometimes, and, maybe, I am. However, my usual retort to something like this exchange of email ends with me telling the client to go somewhere else. This upsets my wife, and I never hear the end of her saying, “You ruined an 18-year relationship because of your ego.” So, I actually explained what was involved, and that was good enough.
Let me give you an idea of what I've had to deal with regarding fees. I was a partner at a partnership for 18 years. I had a quota. I had to do a certain amount of billable time a week, or else I got fired. I put my blood, sweat and tears into that company. I had all of these great ideas, and they were shot down — over and over again. When the 2008 downturn came, I had to lay off so many people in my department. My other partners never lowered their salaries and would just fire their team. My team had families, and I forwent my guaranteed payment to pay them.
In short, for all of those years I did a ton of things for money, and I hated my job some days. In the end, I just got fired, in the middle of tax season, because I refused to compromise my ethics.
When I started my firm, I can remember this client. I’ll never forget this. I was hustling to feed my family. My virtual office that I had to have wasn’t set up yet. So I had to go to this client’s house to get his tax stuff. He lived in Windermere, which is the Beverly Hills of Orlando.
My wife, Belsis, and I pulled up to this guy’s house in Isle Worth, which was where all of the famous people in Orlando live. We pulled up in our car to this huge house with a perfectly manicured lawn. The interior was huge, and they had two pools: one inside, where the husband would take his laps every morning, and one outside for entertaining.
People knew that I needed money, and some took advantage of that. This guy had a very complicated tax return and four kids who also needed work on their returns. I usually charged about $1,000 or so to do his return. This jerk smelled blood in the water and talked me down to $300 for all five returns. And it was worse. From my own pocket, I had to pay $29 per return to file.
At the end of the day, I did this rich jerk’s returns basically for free, and he forced me to deliver them to him, sit with him for an hour to explain them. As I was driving home, I pledged that I would never, not ever, again do something for money that would take advantage of me.
Here is the way that I think and make use of my time. I use Thomas Reuters Checkpoint, which sends me a daily RIA at around 4:30 a.m. The email details everything tax related that happened the day before — from Rev Procs. to Private Letter Rulings to US Tax Court Cases and to Appeals Cases, even Supreme Court Cases, if they had to do with tax. I spend about two hours a day pouring through everything in this email. Even if I don’t have a client that has something I am reading pertaining to this, I read it anyway, because you have no idea what tomorrow will bring.
I have been very blessed that I have been exposed to a lot of different businesses, and if I haven’t, I will spend the time to learn everything about your business and the tax nuances that make it special. I have a master’s degree in taxation. After tax season, I am going to law school. It is supposed to last four years, but I guarantee that will I finish in two. The point is that 80 percent to 85 percent of my clients respect me and will pay me what I ask to be paid.
I realize there is a relatively small percentage that have no respect for what I do, what I know, and who I am. I raise prices every year, and those clients don’t complain. When there are clients who do, I simply dump them because they don’t respect me anyway.
I lost two longtime clients this year over nonsense — for something really stupid. They were clients who I didn’t charge for what I charge now and did free stuff for. When they left, my wife was mortified. These two clients were always making such a mess that I spent countless unbilled hours fixing. I lost one of the clients because one of my employees made two simple mistakes. I don’t throw my employees under the bus, so I apologized. In one guy’s case, I did $19,000 in free services to fix a $400 mistake. My wife was literally yelling at me, asking me why I would so easily give up on a relationship.
But this is the reason as to why.
All that time and energy spent on these two clients, who didn’t realize they were paying me nothing for what I was doing for them, was now freed up. Time was free to pick up three different clients, who gave me large retainers for consulting. Instead of fixing those two idiots’ messes, I now have three clients paying for every second of my time.
I have about ten clients who have to compensate themselves reasonably because they are S Corporations. They don’t want to use our full service payroll that costs $100 more per quarter. To do these after-the-fact payrolls, I have to buy a separate program that costs almost $2,000 a year. I have to do the electronic federal tax payment system (EFTPS) deposit for the client, the 941 forms, and State Unemployment Tax Act (SUTA) reports for them. It’s a nightmare. I have to actually email the client to get the information, and the staff accountant does the work. I then have to send the deposit back to these clients — telling them how much is coming out of their account and when — and file all the forms.
As you can see this is a losing proposition for us. Ultimately, we are paying them for work on their payroll. I wanted to send them an email forcing them to use our payroll service. It would cost them $100 more per quarter. My wife vetoes this because of the tax returns we do for them. For the first time since we have been working together, I have to override her veto.
Aside from all of this, there is nothing that I can do about current clients, or so says my wife. For some reason, I am the billing department. And 99 percent of our clients are billed automatically on the first of the month.
The problem is when a credit card expires or gets lost. I will send another authorization to the client, but sometimes they don’t respond, I forget about it, or whatever. My wife is supposed to take it over, but she wants me to show it to her. When we moved to QuickBooks Online this year, I had to figure out billing for myself, so I don’t really know what I should show her.
The point is that I want to be paid differently. Instead of getting paid once a month, I simply want to set up a retainer. For instance, I get a $5,000 retainer and a credit card authorization. Denoted in the engagement agreement I state the various rates for the services performed, and I send clients a monthly bill showing them how much is left on their retainer. In the agreement, when the balance of the retainer gets to $500, we replenish the retainer for $5,000. We still bill extra for tax returns, and this way makes the billing process so easy.
If I have a client who wants to spend their day emailing me this and that and on any other issue, they are being billed $275 an hour for my responses. If they want a meeting to discuss whatever they want to discuss, they are billed for it. I know this sounds like an attorney’s way of billing, but lawyers actually are doing it right. Why should a client pay you $400 a month and expect you to do their accounting, answer every email, meet with them, do aggressive tax planning, an analysis of that tax planning quarterly — complete with a meeting — and a strategy to save more in taxes? Again, all of that for the same $400 fee? That’s not to mention with the tax planning you are doing, you are saving them tens of thousands of dollars in taxes. I got three clients to agree to do it this way, so we are off to a good start.
The irony of all that I’m talking about goes back to the client at the start of this article. He emailed me back, knowing that his tail was between his legs and asked for an appointment because someone wanted to buy his business. I agreed to a simple 30-minute appointment on Dr. Martin Luther King, Jr. Day, when we happened to be closed for business.
I was forced to shower, put on my suit and head to the office. On the way there, I told my wife this story that I mentioned in the beginning. She rolled her eyes, so I knew that she was starting to come around to my way of thinking about clients and billing.
I tell her that I’m going to ask him whether he wants a free answer or to pay me to do a complete analysis. So, I ask the question 15 minutes into the appointment, after giving generic advice that this guy is scrambling to write down. He replies that he wants it free.
In response, I roughly estimated what he will owe in taxes. And I tell him I can do a complete analysis of the sale that would show saving him a bunch of money in taxes. He declines anyway. I stand up 30 minutes into the meeting, and as he is talking mid-sentence, I shake his hand to thank him and excuse myself from our conference room.
Do you see the disconnect?
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...