I got two emails on the same day from two clients dropping us, and both took me by surprise.
The first client was a 65-year-old guy who owns a printing company (yes, they still exist, but I am certain they will be out of business in ten years). He heard me on a podcast, and we discussed his tax situation.
Long story short, his previous accountant was his neighbor, who I think did his work for free. Not to mention he was out of state. We have a lot of clients all over the country, but the guy could never wrap his head around that. Anyway, we converted him to QuickBooks Online. His daughter worked for him and was supposed to be the internal bookkeeper.
The former CPA screwed his books up so badly, not to mention never amortizing goodwill from when he bought the business, and that caused the guy to lose out on a $35,000 deduction per year. The tax depreciation schedule had recovery lives that don’t exist under MACRS and were all depreciated using straight line.
In my engagement agreement it addresses back work. If I need to do any back work, or fix something, I charge an hourly rate. The QB didn’t match the tax return, so I have no idea where the numbers came from. I had to fix that and the current year stuff. Then he was overdrawn in his bank account by $47,000.
First of all, I don’t know what checks are actually outstanding and which ones didn’t exist. But I wasn’t going to delete a check that might bounce, setting me up for a lawsuit. I spoke to his daughter, again supposedly the internal bookkeeper, and told her that she had to go through the account and delete the checks that weren’t outstanding.
She never did, and I felt sorry for the guy, so I didn’t bill him for the backwork, for which I spent 15 hours correcting. He then fired us, because the bank was overdrawn. When I probed further, it turns out that he went with an accountant ,who was a big customer of his. This is just bad for business because anything can happen, and you lose them as a client.
I was recovering from surgery, and he was auto-billed on the first of the month. He dropped us, on Dec. 27, as I was recovering, and I didn’t stop the automatic charge for January. However, in July he changed credit cards, and our bill was never paid.
Being a class act, he emailed me and asked if I would refund him or if he had to dispute the charge. I explained that applied the charge to the invoice from July, to which he asked for a complete audit of his billing.
Frankly, I’m not going to waste another minute of my time on this idiot, so I told him I would refund him, explained, and attached the signed engagement letter highlighting where it’s discusses back-work, and told him the hours I spent for free, but I will refund him. The new tax law greatly affects him, but that’s no longer my problem. He’ll figure it out for himself.
The second client who dropped us had been a client for 15 years. A $4,500 mistake was made to his account this year, and to make up for it, I removed two invoices (which were a year old, by the way) and performed more than $19,000 of services for free.
Five years ago I filed an OIC for him. He didn’t give me what I needed, and when the IRS ran a skip trace they found this 401(k) plan that he never claimed. This caused the OIC to be rejected, for which I did a new owner for him, for free, and ended up getting him on the currently non-collectible status.
That’s not to mention that he paid below market rate for services and wanted to meet once a week for an hour for a month. He was never billed. After the mistake we made, he started being borderline rude, and then disrespectful, alluding that I was stealing money from him for not doing the monthly work.
I got a little miffed and explained to him that it was as if he was looking for the devil under every bed, which he was. When he disrespected me, I threatened to drop him as a client. He sent me a crappy email to drop us, forgetting all we did for him. He copied my wife on the email, who was nice about it, and moved on.
The more I thought about it, the more I stewed, so I sent him an email explaining all of this to him, explained that most accountants are just cashing paychecks and if they made the mistake that I did, they wouldn’t do as much as I did for free to fix it.
We’ve grown a lot since he became a client, and I ended the email by saying that him dropping us was a favor and that we can now replace you with a client who will not only respect us but pay us what we are worth for our time.
Obviously, both clients upset me, but that was all on me. I should have been billing for everything.
However, the new year has brought a new attitude. I offer one free hour for a consultation. In the past those clients would send tons of follow-up emails, and I was working for free.
Now when that email comes it is met with a tax consulting engagement letter, asking for a $5,000 retainer. I’ve been doing that for a month now, and it usually makes a person go away or ends up with some paying the retainer.
The point is, I love what I do for a living, and that can cause animosity -- like it did here. I’m not doing things for free anymore, and I will ONLY give a client ONE free hour. Anything else, they have to pay for.
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as...