Recently I asked a new client to work on a specific part of an M&A transaction where he was selling his business. It was a very complicated issue that had to be resolved with the other party. I’ve done this a lot and was able to provide a flat rate. However, because of this, I was very specific and clear about what I would be doing, the timeline and client responsibilities, and what was not covered for the charges listed. Shortly after I started, the client called me to express doubts about the transactions and asked me questions, indicating nervousness about selling. It started out pretty simple but quickly turned into a steady stream of calls.
He provided as the reason for the calls my experience and my professed expertise in this type of transactions. At first I was somewhat flattered, but the frequency of the calls and the time it took, and the disruption to my workday, started to increase until I realized it was all on me . I didn’t factor excessive calls into my charges and didn’t expect it.
These calls brought great value to the customer for which I felt I should be compensated. I found three ways to handle this and determined a fee described as follows, along with two sample invoices.
1. Time-Based Charges: Time might have been the best bet since the scope, time and effort were completely unknown and could not be reasonably estimated in any way. However, I am loath to bill this way and I don’t like accounting for my time to the client. I also feel that tying service to time injects a barrier to calls and interactions.
Sample invoice: Added consultancy and consultancy services will be billed at the end of the project based on my hourly rate applied to the time spent.
2. Fixed costs: I determined a flat fee by estimating approximate time, number of disruptions, on-demand nature of calls, overall transaction size, and customer value of information, advice, influence calming, insights and sense of control or security supporting the client. I did not link these costs to the project for which I was hired. It was a different service, much more intense and unique. At that time, I was the only person the client felt capable of providing these services properly and adequately. I also feel that a flat rate removes the sound of the cash register ringing every time the customer wants to call or talk to me.
Sample invoice: Added advisory and consultancy services to be performed until the closing date, but in no event beyond January 31, 2022 : $XX,XXX payable 2/3 upon acceptance and the balance at the earliest between closing or January 31, 2022.
3. Do nothing: Take the calls, pass the time, don’t disrupt the dynamic, and hope that it will result in a new relationship, i.e. consider it an investment.
Sample invoice: Nothing. However, I’m in a business and not a hobby and not getting paid for valuable work done doesn’t seem like the way to run a business. I also think customers don’t mind paying if they know the cost and feel there is value. I’ve also found that when clients don’t know the cost, they are somewhat wary when they intrude on our good nature and, on some unconscious level, refrain from opening up to us completely.
In the long run, none of this would make a difference one way or the other. However, it’s a representation of how you run your business, and I think that’s something that should be considered.
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, CPA. 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 the issues customers have with www.partners-network.com with the Pay-Less-Tax Man Blog for the 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]