The accountant guide to making small clients profitable

With many accountancy practices believing that they have problems with profitability for their small clients, Countingup asked Heather Townsend, author and founder of The Accountants Millionaires’ Club® to comment on where most practices are losing money on their small clients.

Many small accountancy firms often wrongly blame their profitability holes on their small clients. However, many practices make a good margin on contractors or tax-return only clients. So, what’s the truth? Where are practices losing money on their small clients?

Unlimited email and telephone support

Look at the pricing page of any cloud-based accountancy practice and often they will include the promise that there is unlimited email and telephone support. The reality is this promise can often lead to scope creep, in particular the firm becoming the software support department for the client. After all, a quick 10–20 min call each month on a small client adds up over the year.

Even if you do tighten up this promise to limit it to quick queries, there is still a need to educate your staff on what should and shouldn’t be included in the unlimited email and telephone support for clients. Which then leads me onto the wider topic of scope creep.

It’s very easy for staff to not charge for services that are not actually included in a client’s package. After all, you (probably) tell your staff that the firm needs to go the extra mile for clients. Without clear direction it can become very difficult for staff to differentiate between “going the extra mile” and “this service needs to be charged for”. Whilst it may only take a member of staff an hour or so to run off a forecast for the bank or to help a client get a mortgage offer, this is still work that should be charged for if not included in the client’s package. With your smaller clients, this scope creep can soon make a small client unprofitable.

One of the ways to fix this scope creep is to create a rate card for the common (and not so common) requested extra services, e.g. mortgage applications, and talk staff through what is and what isn’t included “as standard” in a package. And finally, it’s not just about having a rate card, but also educating staff to keep the firm’s CRM updated so they can easily see what package and what services the client has included in their regular monthly fee.

Bookkeeping is one of the areas where it is very easy to underprice and make a loss on the small clients. “It’s only a few transactions a month” can easily add up if you are not (a) charging for the service and (b) having to regularly chase clients for missing paperwork.

If you are still charging your bookkeeping by time, then you may be losing money on your bookkeeping for small clients. The best way to charge for bookkeeping is to quote a fixed fee based on the average number of monthly transactions a client has. The average transaction level is then reviewed quarterly. Quoting a fixed fee gets away from clients quibbling over an hourly rate for bookkeeping. It also allows you the firm to make a decent level of profit from bookkeeping when you invest in automating your bookkeeping such as using bank rules and supplier rules.

What may have been a fair rate for the work you were going to do for a client a few years ago, may now be anything but. Your tiny client a few years back may now be quite a substantial client. We’ve heard of £1m+ companies paying under £100 a month for their accounting and tax services because the accountant has not reviewed their fee regularly. It is important that you review your small client fees every year, and every 3–6 months if you also do bookkeeping for them.

I get the fact you and your staff want to do a proper job for a client. And a proper job can mean making sure the books and accounts reconcile to the penny, even if this blows the whole of the client’s budget. And of course, small clients don’t have a big budget of time allocated to them. So it’s even easier to blow the budget getting everything tidied up properly. To avoid this in your practice means spending time with staff to understand what good enough looks like.

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