The latest trend for accounting firms seems to be switching to fixed fees. And it’s not hard to see why, when you consider the advantages fixed-fee accounting services gives both the firm and its clients.
|Advantages for clients||Advantages for accounting firms|
|Know exactly what services they will receive.||Services, fees and payments (usually) are set in stone.|
|Know exactly how much they need to pay.||Can plan workflows around known commitments.|
|Know when they need to pay (for monthly fee arrangements).||Clients are more open to discussing other parts of their business, which can lead to more work in the form of value-added services.|
|No surprise bills at the end of the assignment.||With no bills to haggle over, clients are less apprehensive about seeing their accountant.|
Problems with fixed-fee accounting services
Unfortunately, a lot of accounting firms still struggle with fixed fees. Here’s why.
- Data integrity.The first step in any fixed-fee agreement is to settle on the timing and quality of the data. After all, you’ve based your fee on it being reconciled, up to date, and 98% correct.But if the client’s data entry needs correcting, or you have to keep asking for missing information (which means repeatedly opening and closing their file), that figure will be blown out of the water.That’s why we won’t even consider offering fixed fees unless the client is on Xero. At least then we know the data will connect to the bank feeds, and we’ll only need to review the integrity of the remaining data entry.It’s always better to control the data wherever possible by either ensuring they use a competent bookkeeper, or offering a bookkeeping solution as part of your fixed fee package. By controlling the data, you control the integrity and quality of information coming into your practice. Knowing the data is coming in uniformly, accurately and timely will ensure your internal processes will dovetail, and generate internal efficiencies for your firm.
- Scope creep.Scope creep can be caused by:
- the data being incorrect (as mentioned earlier), which creates additional work to get right
- the client expecting and asking for additional advice that wasn’t included in the work’s original scope.
Unless your engagement letter clearly states the services you’ve agreed to provide, and you vigilantly enforce that agreement, scope creep can be tough to deal with. Clients often ask for advice over the phone, which the accountants willingly provide despite it being out of scope.
One way to deal with it is to add an optional ‘telephone advice’ fee into your fixed fee agreement. If a client takes it up, everything’s good and dandy. And if they don’t, then at least they’ll know that any phone enquiries they make will probably be billed for. But if you don’t mention it in your engagement letter, it will be hard to collect the fee without potentially upsetting the client.
Another way to deal with scope creep is to factor it into your fees, and then add it as a ‘free’ service. Clients expect you to be there for them, so why not make it a feature of your service? Just remember that while you’ll come out in front with some clients, others may call you more often than you anticipated. That said, you should come out on top overall if you make a sufficient allowance across your entire client base.
How to make it work in your accounting firm
To make fixed fee accounting services work for your firm, follow these five steps:
- Use a software package such as Xero that will help you collect all the data and let you work on a single ledger.
- Have adequate steps in place to guarantee data integrity and reduce the time spent fixing your clients’ bookkeeping attempts.
- Dovetail your internal processes to the quality of data you are receiving
- Make sure your agreement details the services to be provided
- Either establish a separate fee for telephone support, or factor it into your fee and offer it as a ‘free’ service.
Offering fixed-fee services certainly has its advantages—for both your firm and your clients. But you need to structure it correctly by following the five steps we mentioned, or you’ll quickly lose that advantage.
If you have any questions, or would like to know more about offering fixed-fee services in your accounting firm, please get in touch so we can help you provide Real Advice in Real Time with Real Data.