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I never thought dropping customers was a good strategy. How could I grow if I let customers down? Well, there are many who find it necessary to drop clients to improve their practice. I do not agree.

Running an accounting firm is a business and when a business is busy you add resources or capabilities to run that business. Either hire more staff, outsource the work, or find a way to do it more efficiently or using technology. If you’re overworked, dropping less profitable clients or those that don’t fit your practice model sounds appealing, but I think as long as those clients are paying their bills, why would you want to part with your revenue and streams? cash ?

I understand the pressures of being overworked, but it usually doesn’t happen overnight; it hits you. Some suggestions include being more selective in accepting customers, reviewing your work-in-progress inventory and reassigning it, making new delivery commitments, or deciding what you don’t need to do. However, I don’t want to get involved in the workflow discussion right now, so let’s get back to the issue of client abandonment.

Here are some examples of clients I’ve abandoned:

  • Periodically, we have established minimum fees for personal tax filings and a number of very low fee clients have been terminated. What we did was make arrangements with a few local accountants to accommodate these customers under the rate structure they were on. When I called clients to inform them of our fee increases, I also told them that if they wished, we would transfer their files to Mr. or Mrs. Soandso and here is their contact information. If they give the word, we will forward the files. I also assured them that I would be there if they had any questions or issues they wanted to discuss.
  • We considered increasing our minimum flat fee for bundled business customers, rather than removing it. However, when we told them about the new fees and told them we were going to relax them over three years, it was pretty much accepted and we really didn’t lose any business that way.
  • We have made it a habit to increase our fees each year for most customers. However, if a client was doing really badly, we didn’t raise their fees. However, sometimes a client complained about the continuous increases and objected to them. Depending on their situation and their relationship, we either pushed back or held on. I remember losing a client this way. I let her go because, although she was a nice person, she was also a very needy client who was much more time consuming than necessary, which I tolerated, but then decided that our raises were justified and necessary and we let her go.
  • Once I lost my temper. I have a new client who owed a huge amount of unpaid tax withholdings to the IRS and it took me some time to work out a five year payment agreement. I was also very proud of the result. About a month later, I noticed a big check in the company’s account and asked him what it was for. He told me it was a down payment on his daughter’s wedding, which was going to cost about double what he owed the taxman. It made me feel like I was wasting my time helping him with the taxman since he clearly wasn’t going to make it, and I told him I didn’t want to be his accountant anymore.
  • I had a commercial client who was in the process of filing for bankruptcy. I noticed that my neighbor was listed as a creditor for a relatively small amount. This neighbor was a nice guy with a small business who managed to make ends meet, but not much better. When I spoke to this neighbor’s client, he told me that “not getting paid was a risk he took in business and it was his bad luck.” I dropped it.
  • A client whose wife was a serial caller called every half hour until she spoke to me. This was when we had a receptionist answering the phone. Once during tax season, when she called, she was told I would be in a meeting until 3 p.m. and would call her back then. Well she called around 10:00, then 10:30, then 11:00 and 11:30, then noon, at which time the receptionist was very upset and distraught and told me about the continuous calls. I told her to give it a ride the next time she called, and I told her she could get her papers back since I didn’t want to deal with her anymore and if she didn’t get them back by 5:00 p.m. would charge $15 per day for storage until she picks it up. I also told her that I told my receptionist to hang up immediately if she calls again.
  • I have a few other stories like this, but each one was about someone I really didn’t like or wanted to deal with. I sort of developed a “No Jerk rule”.
  • I also have stories of clients doing things I didn’t think were legal and quitting them as soon as I found out. These situations were obvious where no decision needed to be made. No regrets on any of these.

My suggestion for accountants who are overworked is to add staff, slow down the client acceptance process, and/or try to figure out how the work could be done more efficiently. Adding overtime (when not during tax season) is also an option, but I suggest you pay for that extra time.
There may come a time when you want to transition your practice to a different practice area, and that could be a legitimate business reason for dropping clients. But transitions usually take time, so there’s no rush to reduce cash flow. Sometimes it is necessary to prune certain clients that simply do not integrate or consume too much energy, and that is normal. just make sure you have the right reasons to do so.

However, considering customers as “unprofitable” is a subjective matter and perhaps a matter of judgment. Dropping customers reduces cash flow without reducing costs. No matter how “low” the fee is for a particular customer, it’s extra income at no extra cost for this income. When you drop that customer, you lose all the cash flow that the customer was providing.

There are always exceptions to everything, and there are times when dropping customers is the perfect strategy. However, I don’t think this is a desirable strategy on an ongoing basis.

Do not hesitate to contact me at [email protected] with your questions about practice management or assignments you may not be able to complete.

Edward Mendlowitz, CPA, is a partner at WithumSmith+Brown, PC, CPAs. He is on Accounting Today’s list of the 100 most influential people. He is the author of 24 books, including “How to Review Tax Returns”, co-authored with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition”. He also writes a blog twice a week dealing with customer issues on as well as the Pay-Less-Tax Man blog for Bottom Line. He is an adjunct professor in Fairleigh Dickinson University’s MBA program and teaches end-user applications of financial statements. Art of Accounting is an ongoing series where he shares autobiographical experiences with advice he hopes his colleagues can adopt. He welcomes practice management questions and can be reached at (732) 743-4582 or [email protected]