Divesting clients wisely.

• Author: Eckelkamp, Joseph T.

Most CPAs agree it is in everyone's best interests to match clients with CPA firms that are best suited to the clients' specific needs. However, that fit can change over time, which can lead to divesting. Wise client "de-selection" or divesting, requires combining several key concepts and creating alliances with other service providers. This column discusses how firms seeking to narrow their client base and firms seeking to add clients can create value, as well as add value to their clients--at the same time.

The 80/20 Principle

The Pareto Principle's impact on CPA firms is a frequent topic of discussion. Put simply, the principle states that 80% of a firm's revenues come from the top 20% of its clients; see Kotch, The 80/20 Principle: The Secret to Success by Achieving More with Less (Doubleday, 1998). And further, a different 20% of clients usually produces 80% of a firm's problems. Some have even used the Pareto Principle as a basis to postulate that the bottom tier of clients may actually reduce a firm's profits.

The value of strategic alliances with other professional service providers is another frequent topic. Often, the discussion deals with firm specialization, niche development and/or combining firms with complimentary skills to serve a broader market. It rarely deals with alliances among firms situated in similar market niches offering similar services.

Combining the Pareto Principle with the concept of strategic alliances, CPA firms can create value and build strong relationships with colleagues as a foundation for future cooperation and, possibly, for succession planning. Moreover, they would be able to accept clients with less concern about whether the clients will still be attractive in the future. This strategy also permits smaller firms to create a "feeder" relationship with larger firms. This can help the smaller firms grow steadily and more predictably.

Divestiture Instead of Firing

As professionals, CPAs have a responsibility to provide their clients with quality service. When this is no longer possible, it is time to divest. Divesting can be beneficial to clients and CPAs alike for the very reasons the Pareto Principle identifies. It usually occurs when clients no longer fit the CPA's target market. Often, the firm's growth or reduction in client services drives the decision, usually making it unfair to both the client and the CPA to allow a poor fit to continue.

Divestiture's basic premise assumes it is better to find a new home for clients rather than just jettisoning them. It helps avoid making the client feel rejected, and rewards the divesting firm for having attracted and served the client. It helps the profession's overall image by reinforcing the notion that CPAs look for what is best for their clients, as fewer clients are left to fend for themselves.

It is often emphasized that the best way to "fire" clients is to deliver the message professionally in a way that does not anger them. However, no matter how great the effort, the message the client receives is negative.

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