Now is a good time to screen tax clients for potential problems. There is still ample lead time before tax season for a client to replace you in the event you decide to disengage. The following checklist highlights some of the warning signs that may be time to disengage from certain clients—ideally after they have paid their bills.
Practice management and risk management are often one and the same concept, and client screening is an excellent example of such convergence. Not only is it the first step in an effective loss prevention program, but client screening can be used to identify less desirable clients that may be keeping your firm from developing more desirable clients.
Re-evaluate your relationships with clients on a regular basis—at least annually. The following checklist highlights some of the warning signs that may be time to disengage from certain clients—ideally after they have paid their bills.
Late Payment, Difficult Client
Does the client pay your firm on time? If not, find the reason for the payment problem and decide whether or not you want to retain the client. Pay special attention to difficult or manipulative clients who do not return your phone calls, are otherwise non-responsive, and often cause delays. Difficult behavior should be explored. Take swift action on your own behalf to investigate.
When a client does not provide the information you need to complete an engagement, carefully consider the problem. Is it sloppy record keeping, or is the client deliberately delaying or withholding information? Be cautious when it appears that documents are being deliberately withheld, or you are urged by a client to proceed with work without having proper documentation. Client behavior such as this is a red flag, and repeated delays could be the result of unethical or illegal activity.
Deteriorating Relationship with Client
Abrupt changes in a client’s behavior may be a sign of impending liability issues, severe financial problems, substance abuse, or other personal problems. Trying to uncover the source of the problem could help, so don’t ignore the warning signs. If a client continually fails to return your phone calls, or threatens to sue, you should take swift action to remedy the situation, or disengage before the situation worsens.
The “Antacid” Client
Some clients may be great for your firm’s financial condition, but the money they bring in simply isn’t worth the emotional turmoil they create for you and your staff. These are the clients who are nasty to your staff, make unreasonable demands, are non-responsive, complain excessively, argue, and are generally obnoxious. In such cases, you have to ask yourself: Is this client worth keeping? Sometimes, the answer is that “life is too short.”
Changes in Client’s Business
When a client’s business changes, you may need to re-evaluate the relationship. A client may, for example, buy a business that requires work you are not qualified to perform. Or a client may decide to sell all but a small portion of the business, and you may not wish to work for such a small entity. A start-up client may grow and reach a point when it plans to go public, and you may not want to perform the public work. Such changes can alter the professional relationship and lead you to decide to disengage.
Changes in Your Firm
When your firm changes, you may also need to change your client base. The loss of a partner with an area of expertise that the other partners don’t possess will require a decision by the firm regarding continued service to the former partner’s clients. You may decide that you no longer want to continue performing a particular type of work. Or you may decide to grow your business in new directions. Review your client base whenever your firm changes in order to determine whether or not all existing clients still fit the firm.
Potential Conflict of Interest
Consider all client situations carefully in an effort to spot potential conflicts of interest, which may affect your objectivity or independence—even if you are not engaged to do attestation work. Examine potential or actual conflicts of interest from a broad point of view, considering the client’s perspective as well as those of other owners, investors, partners, beneficiaries and spouses. Troublesome or emotionally charged scenarios can include a partnership break-up, a trust, bankruptcy, merger, divorce, or anything else that involves opposing or unhappy factions.
In addition to being alert to these warning signs, protect yourself further by educating your clients on their responsibilities within the relationship. Let them know what your responsibilities are to them and what they can expect. Make sure your staff understands that they should inform you of any problems they have with clients. Keep notes and document conversations, advice, meetings, requests for information, decisions, and any payment problems or changes in a client’s behavior. Documentation could be an important part of deciding whether or not to disengage.
When you decide to disengage, seek to terminate the relationship professionally and formally, in writing. Your disengagement letter should always contain clear statements, a description of your work, and a list of any due dates or filings. Done effectively, a disengagement can leave your client feeling that you have acted in the best interest of both parties.
Effective communication is a key factor in any CPA-client relationship, and when you work to stay informed and in control, you are safeguarding your firm. In the end, disengaging is simply good practice management, and knowing how to do it skillfully and professionally will help you grow your practice and avoid liability.
Suzanne M. Holl, CPA, is vice president of loss prevention services with CAMICO (www.camico.com). With more than 18 years of experience in accounting, she provides CAMICO policyholders with information on a wide variety of loss prevention and accounting issues.
DOWNLOAD FREE REPORT: 25 Risk Management Tips from 25 Years
Did you know that your engagement letter might give your client a way to sue you? Or that a lack of client screening is often the first step to a claim against you?
This report includes 25 risk management tips and thoughts from CAMICO. The tips offer practical advice on topics such as documentation, client screening, engagement letters, and are based on 25 years of dialogue with CAMICO’s CPA policyholders — one for each year of service.