Firing clients can be good for business.

• Author: Holub, Steven F.

JOHN'S DAY IS PLANNED FOR MAXIMUM efficiency:

1. Read technical updates;

2. Respond to the previous day's emails;

3. Return client calls;

4. Clear off desk by reviewing tax returns;

5. Spend the afternoon meeting with clients; and

6. Leave time to make his son Billy's soccer game and have dinner out with the family.

John opens his email and starts scouring his inbox for the daily tax updates, but his attention is drawn to the three emails from a client all sent between 5 p.m. yesterday and 8 a.m. today. All of the messages are flagged with a red exclamation mark.

Suddenly John's shoulders tighten, his stomach quakes, and his temples begin to throb. Despite his well-thought-out plan, he has to open those client emails; after all, they could be important.

As he feared, the client is in a hurry to get his returns filed and is very frustrated. After all, he dropped off most of the tax return documents last week and emailed the remaining items yesterday morning. As he told John when they met last week, this is a very simple return that John should be able to complete with minimal effort, and he wants to get this out the way so it will not be hanging over him.

All too often this or similar scenarios occur at CPA firms. Anyone with more than a year's experience in a tax practice knows the rest of the story.

John is the fourth CPA this client has hired in as many years. He spoke disparagingly about them (wonder what he will say about you?). The client was not comfortable leaving a retainer when he dropped off the information because he has trust issues. The return most likely contains complex issues that require additional work, and it is likely the client has not provided all relevant information upfront. It is also likely that the client is not willing to pay for the additional work that may be required.

This is an obvious example of a "bad" client, and the decision to part ways should not be too difficult. But, often, the decision is not as obvious. In reality, there are a variety of reasons that clients should be asked to leave the firm. The average CPA can follow certain steps to recognize these situations and take appropriate action.

Precautionary Measures

CPAs are taught to exercise due diligence when bringing on new clients. CPAs should assess whether they have the technical knowledge to perform the work and the available staff and resources. They should also assess whether the potential client's expectations are reasonable and whether its management team exhibits high levels of integrity.

If a CPA firm does not have a client acceptance policy that evaluates these issues along with many others, it is time to create one. The AICPA has resources on its website that are helpful when deciding whether to accept new clients (see "Evaluating and Firing Clients," available at tinyurl.com/a8warwc). Most professional liability insurance carriers have materials and checklists available. Even a general internet search will produce numerous results on new client screening techniques.

While it is not always possible to weed out bad clients before bringing them on board, it is best to try. Anyone who has had to fire a bad client would probably agree that it would have been better to have never accepted the client in the first place.

This is certainly not an all-inclusive list, but the following are a few warning signs CPAs should look out for when meeting with potential clients. Consider whether the prospective client:

* Has changed CPAs often;

* Is rude to office staff

* Will not allow contact with prior CPAs;

* Tries to haggle down the fees;

* Keeps records in poor condition;

* Needs a project completed quickly;

* Is not willing to leave a retainer;

* Is hesitant to sign an engagement letter;

* Is currently delinquent in filings;

* Insists on being the only...