The business of ending client relationships
When terminating a client relationship, it’s best to be diplomatic but firm (Shutterstock)
In an ideal world, every client relationship would be smooth sailing. But there are times when things simply aren’t going the way they should. Whether it’s a personal, financial, ethical or business issue, accountants need to know when it’s time to go their separate ways, and more importantly, make the transition as smooth as possible for everyone.
WHEN YOU KNOW A CLIENT NEEDS TO GO
Behavioural issues—such as being abusive, rude, or combative with staff—are the most common reason for parting with a client.
“For us the majority of terminations of relationships are personality driven,” says CPA Robert Gore of Robert Gore & Associates in Toronto. “Sometimes clients are just mean, unhappy, or unrealistic, making it hard on staff. They may be nice to me but if everyone in the office cringes when that person phones, then they need to go, even if they don’t present a financial or tax risk.”
It is not uncommon for clients to present themselves differently to staff, says Bridget Noonan, CPA, a director of Clearline CPA in Vancouver. “It’s always a good idea to engage with your staff to determine clients that are difficult to work with.”
Beyond behavioural issues, there are other reasons why a firm needs to call it quits. On the business risk side, you could have a client with unrealistic expectations, poor record keeping practices, inappropriate or risky behaviour in their reporting. Or they might be simply not profitable.
Yet another reason could have to do with internal capacity. In some cases, firms have had to reduce the burden on overworked staff and narrow their focus to specific service areas or clients, says Noonan. “Additional compliance obligations and complexities such as the new underused housing tax legislation, have put added pressure on some teams. In our case, we decided to stop servicing non-corporate clients.”
Sometimes clients move into industries or different parts of their firms that may not align with your values, adds Kevin Lawrence, managing advisor, Lawrence & Company Growth Advisors Inc. in Vancouver. “Everyone has different ways for working and sometimes they just don’t add up. There are firms that make an annual list of clients they are struggling with the most and try to get to the root of why. If they can’t fix the relationship, then they need to part ways.”
SEND A CLEAR MESSAGE
When introducing the conversation about terminating a client relationship, it’s best to be diplomatic but firm.
“You need to communicate early and often,” says Noonan. “When clients put forth code of conduct complaints, one of the most common is that the accountant is not responding to calls or emails and there has been no clarity in communications and steps forward.”
“The mode of communication is important,” she adds. “It might be easier to communicate over email or a client interfacing portal, but it is not the best for clarity of messaging and can lead to misunderstanding and confusion. Be precise and direct. Trying to soften the blow can cause confusion. Accusations and finger pointing can also be dangerous.”
“The key is to handle the conversation with respect, which isn’t always easy,” says Lawrence. “But if you start blaming the client, they might fight back, so it’s always better to come in with a balanced perspective rather than pointing fingers.”
Lawrence often refers to his friend, who has a simple measure for letting go of a client or staff member. “The next time you might see them, will they be willing to take your call or engage with you at a social function? If you keep that in mind, your approach needs to be consistent with the outcome.”
If you don’t have a templated disengagement letter, create one or find a consulting service that can help, says Noonan. “At Clearline we have three versions: it’s me, not you (we are changing our focus/direction); it’s you, not me (we have the following issues); or there are legal matters/issues that have come up.”
Timing is also critical. A good point in time would be when you are doing the next year’s planning session as it allows breathing space for the client to make the necessary changes.
There will also be more formal accounting and compliance standards that need to be followed, including communications relating to Canada Revenue Agency access. Many procedures can be found in the CPA Rules of Professional Conduct.
SAY GOODBYE BEFORE YOU START
“In some situations, it isn’t so much about getting rid of a client, but not taking them on in the first place,” says Gore. “We screen every client that comes in to determine if they have realistic expectations around turnaround times, hours and fee expectations. If they are hopelessly disorganized with their record keeping or display a problematic personality, we encourage them to go somewhere else.”
Another warning sign is if the first question is, “What will it cost?” “It’s like asking a mechanic what might be wrong with your car before they’ve seen it,” Gore says. “Those clients are not concerned about service and quality, but about getting a good deal before finding out if the work is even doable.”
Clearline uses a subscription service that conducts conflict of interest and background checks, says Noonan. “We want to make sure the clients we are considering are forthright in what they are telling us. There have been a few times when their version of events is simply not true.”
Another option is communicating with their previous accountant to find out why they left.
AVOID COSTLY MISTAKES
Not disengaging early enough is a key mistake that accounting firms can make, says Noonan. “You can’t be terminating a relationship March 15 for persons filing personal taxes. You should disengage at least six months before year end to allow a year for them to meet their filing obligations.”
In an effort to avoid confrontation, some firms will try increasing fees until the client leaves, she says. “That’s not a good idea. It just sours a relationship that is already not good. You just end up keeping a bad client that now expects better service because they are paying more. So many have tried that over the years, but all they end up with is a bad client with even higher expectations who will eat up all your hours.”
If you are disengaging where there are concerns over issues such as non-compliance or fraud, CPAs have an obligation to communicate with their successor, says Noonan. “However, consider carefully how to do this as there are privacy legislation and contractual obligations in play, which are outlined in the CPA Rules of Professional Conduct.”
Perhaps the biggest mistake of all is an all too common one, says Lawrence. “The worst thing you can do is not address the issue at all.”
PRACTICE MADE PERFECT
Want some more guidance? Read our tax blog, Tips on running a high-quality tax practice. For practical information and fresh perspectives on current and emerging tax issues, like the underused housing tax, sign up for our tax blog.