“You’re fired!” These are words that no one wants to hear, and they can be just as difficult to say. When they have to be said to a client, the conversation can be even harder. But there are circumstances when letting go of a client can benefit a CPA firm’s financial bottom line, employee morale, and more. To discuss this, today we are with Jean Caragher, president of Capstone Marketing. 

If you’d like, you can download this episode’s audio file. Additionally, you can follow us on iTunes, Google Play, or subscribe to our RSS feed.

By: Bill Hayes, Managing Editor, Pennsylvania CPA Journal

Podcast Transcript

“You're fired.” They are words that are incredibly tough to hear, and they are probably just as difficult to say if you are a person in charge of making personnel decisions in a competitive marketplace. But what if you are saying it to a client? For CPA firms whose instinct it is to hold onto every client, it could seem to be a counterintuitive decision. However, the decision to drop a troublesome client is one that could have benefits that go beyond the financial bottom line. To talk about this today, we are with Jean Caragher, president of Capstone Marketing.

What are some of the reasons for which a firm or a practitioner might want to fire a client?

[Caragher] Every firm has those troublesome clients that the staff doesn’t like to work with. They may be slow payers, they don't need a whole lot of extra services, or they have limited growth potential. There are many more characteristics, but if practitioners really examined their client base, they are going to recognize those clients that they really shouldn't be working with any longer.

Firing a client can seem somewhat antithetical in a business environment. The goal, it would seem, would be to have as many clients as possible and therefore make as much money as possible, but what sort of benefits might a firm experience if they fire a client that maybe go beyond financials? Or even benefit financials indirectly?

[Caragher] There are several because it's not about the number of clients, but the profitability of those clients. I've been in this business a long time and back in the day it was all about the numbers and how many clients you had or how many contacts you had in your database and that is not how the world works anymore. It's much more about the quality of those contacts and how profitable those clients are. Practitioners need to focus on spending their time on their best clients because that's also going to help them identify opportunities to sell additional services or to meet additional needs of those clients.

Instead of working on the clients that they really should fire, they're working on the very best. It's going to improve the profitability of the firm. If your clients are profitable, your firm is going to be profitable as well. Perhaps the most important is your staff is going to be happier. As I mentioned earlier, every firm has those clients that don't respect their staff, are just always late, or don't follow the advice that they're given by the CPA. And those are not the types of clients that CPAs really need to focus on.

It's clear there are reasons that you might want to fire clients, but what are some of the factors – be they personal, emotional, business related – that make it hard to fire a client?

[Caragher] Well, let's face it: It's a difficult conversation as it is. A lot of people, not only CPAs but people in general, we really don't relish having difficult conversations or writing that sensitive letter about the need for the client to transition out to another firm. First, it is emotional because you need to be willing to have that difficult conversation.

The clients, they could be a long-term client that you've worked with for a long time, but they're not growing, they're not listening, perhaps they may be withholding information or they're less profitable than other clients, so when you conduct an analysis or a comparison, they're not filling the description of your ideal client anymore. A client could have been referred by another important client. It does get sensitive absolutely. There's lots of different things that a practitioner needs to keep in mind when making this decision on who to fire or who to transition out of the firm.

Beyond just knowing some of the stuff you deal with from certain clients, whether they don't pay on time or other materials are late, how do you go about determining which ones should be fired? Is there a system to it?

[Caragher] Absolutely, because this shouldn't be a gut decision or decisions made on a whim. I would really recommend that practitioners go through a process of analyzing your client base so that you really are comparing apples to apples. These criteria are the same when CPAs are considering bringing prospects on. When you look at the estimated fee? What sort of realization can you anticipate? Can the client pay? What's the year-end? When is the work going to take place? Because that also impacts the decision, doesn't it? Because when you look at the cycle of work, perhaps the rules are less stringent during times of the year when you're not quite as busy.

You could look at the growth potential of that prospect and of the client. How many leads has the client given you? Or, are they supporting or helping you build a particular niche or service line? Can your firm still serve that client to the best of your ability? Part of the process is creating this list of questions or criteria, if you will, and analyzing your client base against that criteria. I know firms who go through this process every year. There are firms that transition out their bottom 10% of their client base every year. That's the exception although I think it's a tremendous practice. But what happens is that the firm winds up more profitable. They're working on the best clients, and their staff are happy.

Are there protocols that need to be followed when you're going to fire a client? Is there a way that you need to contact them or does it vary from a case-to-case basis?

[Caragher] I think it varies on a case-by-case basis because after you've conducted that analysis we just talked about, you need to look at that list of clients, and the practitioners and partners within the firm, they are going to know the history of those clients and how long they've been clients or what the troubled areas are. There are differing opinions on this, but you could take a look at that list and determine which of those clients aren't paying at least your minimum fee.

In some cases, to improve that relationship, or to eliminate the need to fire that client, it could be raising the fee. If raising the fee turns that C client into a B client, and the client's willing to pay, that perhaps could solve the problem so you don't necessarily need to fire those clients. You, of course, do want to take a look at that other criteria because if they're still really troublesome and are disrespectful to your people or whatever the other criteria you're looking at is, simply because they're spending more money with your firm doesn't mean that you should retain them.

But, at first glance, it could be getting your client base to be paying at least the minimum fee. Then you could look at the balance of that list and decide who needs to get a phone call, which of course is more personal. Who requires a personal visit? I know firms too, in going through their analysis, they may have worked with very large companies for however many years and for whatever reason, it could be risk or any other criteria, that they've fired. And that of course takes a face-to-face meeting.

You want to determine who do you really need to see face-to-face? Who are perhaps those long-term clients that really deserve that face-to-face meeting? Who gets the phone call? Who gets the letter? One important point to remember though is, no matter how you make that contact, whether it's in person or phone, don't ever do that by email. Don't make that an option. Make sure that every one of those clients who are being fired or transitioned out, gets a written letter so that they have written proof of what's happened.

Reading a piece you had written on this topic, I saw that you mentioned the need for a facilitator in some cases. Is it a good idea for all clients to have this? Or just special cases? And what would be the facilitator's roles or duties?

[Caragher] I think the use of a facilitator can be extremely helpful because, as we talked about before, this whole process is sensitive. It's difficult because for a lot of firms this is a change in strategy. Having that third party, if you will, helps the CPAs conduct that analysis and make them more focused on it and more accountable. Because as you're doing that client analysis, it's really easy for a practitioner to come up with some reason why his or her clients can't be fired or shouldn't be fired or they don't have anybody on their client list that fills any of the criteria for being transitioned out.

Being challenged by a facilitator helps them make those hard decisions. I've been involved with various clients in a process like this and it just helps them take a different look at situation and at the overall big picture of the firm and its vision and where that firm is headed. We all just have a finite amount of time to spend working on the business and in the business, and when you know in your heart you've got clients that are holding you back, the facilitator can be that encouraging voice to help them make those choices.

Say you decide to fire a client. You've made that decision. Do you in a general sense think it's important to stick to that decision or is there leeway should the client say, in essence, not to make it sound like a personal relationship here, but the old “I can change.” How do you handle that? Do you face repercussions if you go back on your decision and they don't change?

[Caragher] We talked earlier about perhaps the first step is getting clients to at least be paying your minimum fee and to see how that goes. That's giving a first step to really work together in most successful way. We've increased our minimum fee and as of whatever date it is this is going to be your fee. That gives the client a chance to say, "Sure, I'm willing to do that, no problem." Or, "Gosh, that's getting a little steep for me. We're going to need to look elsewhere."

That next step could be to analyze those clients that are still on the list and figure out, “Gosh, if they would just do this one thing differently.” For example, if they would be more timely in getting us their information, this client would be a dream. We really like working with them and they've got a great personality and other positive attributes, but, man, they're always late and that just slows everything up. It's just a cog in the wheel.

That would require a conversation. It could be a bit of a difficult conversation about that item. It could be communicating, “We're just analyzing our client base and figuring out how best to work with each client and in order for us to continue working together, we need you to be more timely in getting your information to us because when you're late, these are the problems that ensue and if you were on time, this is how much easier it would be for us to work together.” You are giving them an opportunity to change their behavior.

Then it's up to the client to either follow through or not. I believe that in some cases these conversations can happen and then you're monitoring whether the client is on board with you. And you'll know that soon enough. If they are, you've retained a client and the relationship is better. And if they don't come on board, you'll know that the next conversation you have about transitioning them out, you're going to feel less of a questioning mind-set because they haven't showed the commitment to the firm.

If you're needing to fire clients, that means you may be having issues with bringing the right clients in. What can a firm do to better ensure that they're bringing on clients who are the right fit for them?

[Caragher] Each firm needs to write a description of the ideal clients of the firm. Depending upon the size of the firm, because larger firms would naturally have more industry niches or service specialties and those descriptions could be a little bit different. For each area, they really need that description of the ideal client so they know when they're working with prospects, do they fit this description or not?

When they're meeting with their referral sources, they're letting their referral sources know the types of clients they're looking to bring into the firm. Because if you're not specific with your referral sources, they're going to send you anything that comes down the pipe. Whether it's a client that you want or not, and talk about difficult conversations, telling a referral source you're really not interested in that lead is a difficult one. If you're specific from the beginning, and your referral sources know the types of clients you want to bring on, that makes it simpler from the beginning.

But in addition to that, a firm should have a formal client acceptance process. Earlier in our talk today, you were talking about, well, shouldn't firms have as many clients as possible? And isn't that how business is done? We know that it's not. By having that description and that acceptance process, it's going to help firms avoid firing clients at the other end. Those criteria that I was mentioning before about fees and realization and growth potential and risk and the leads that you could expect from them, these are all criteria that you need to examine within the realm of each new business prospect and if they fit that criteria or not.