Evaluating clients annually is good practice management for a professional services firm. A firm's strategies, areas of practice, and risk profile change over time. As a result, certain clients may no longer be a desirable fit for the firm. Similarly, some client behaviors become problematic and can harm the staff's morale, creating issues for partners, and causing lost opportunities to serve clients who complement the firm's business model.
Effective practice management includes recognizing the need to discontinue certain client relationships. The art of identifying when to end a relationship and how to terminate a client requires experience and should be embedded into firm culture.
When the need to terminate a client is identified, a firm can limit its risk by informing the client in writing of its decision to end the relationship. If a firm fails to effectively communicate the termination, the client and third parties may operate under the impression that the CPA firm still serves the client. Even if the client realizes that the relationship is over, many may state they "thought" the CPA was coming back to perform "the annual work as usual" when there is no documentation of a termination.
RATIONALIZING A RELATIONSHIP
CPAs may rationalize the perpetuation of a poor relationship with a client because the firm is reluctant to lose the revenue or dismiss a longtime client. Often, if the CPA has provided services to a client for a long time, the CPA also may serve the entire family in both professional and business matters.
The client may be an acquaintance outside of the professional relationship, and their paths will cross in the community. The client may be a good referral source, a "good person who is just experiencing financial trouble," or well respected in the community. Nevertheless, if the client places stress on the practice, the firm should consider ending the relationship.
COMMON INDICATORS OF A PROBLEM CLIENT
Timely termination is critical to mitigating litigation risk involving a problem client. Firms should implement an annual assessment of the client portfolio shortly after busy season when client interactions are fresh. Client behaviors and circumstances indicating the need for termination may include, but are not limited to:
* Nonpayment or consistently late payment of fees;
* Frequent price or service complaints;
* Disagreements or disputes between the CPA and the client (over issues such as fees, aggressive tax positions...