Congratulations

Congratulations to Brenda Richter, CPA who was featured as a guest blogger on America's Best Business Practices.

http://bestbizpractices.org/2010/02/08/tips-for-small-business-2009-income-tax/

Adaptive Capacity

Every business can be thought of as a plane such as the Boeing 777. When an airline adds a new plane to their fleet, they add capacity. The airlines then go one step further by dividing that marginal capacity into 5 segments. First Class, Business Class, Full-fare Coach, Coach & Discount/Priceline. Other businesses that work with similar adaptive capacity models include hotels, golf courses, movie theaters, and car rentals. Your CPA should also have an adaptive capacity model in his/her business. So the next time you are working with your CPA, think about your budget and what level of service you want from your CPA. Ask yourself the questions associated with these pictures.

Where do you want to sit on your CPA's plane?

Or, would you prefer a private jet?

Progressive

In one of the more recent Progressive Insurance commercials sales person Flo touts the newest feature available from Progressive - Name Your Price (SM). It's simple. You tell Progressive what you want to pay for insurance, and they build a policy around your budget.

What a GREAT concept.

Shouldn't your CPA be able to do the same thing for you?

I think so.

Are We Buying & Selling "Time"?

What’s Time Really Worth?

Jamey Johnson’s song The Dollar (lyrics video) can give us pause to ask some hard questions:

1) Why do professionals charge by the hour?
2) Why do their clients pay by the hour?
3) How much is our “time” really worth?

Walk the Talk

Earlier this week, a fellow CPA sent me and several of our colleagues a link to a Simple Truths video. Since I am an avid fan of Simple Truths, I was interested to see which link he sent. He sent Walk the Talk.

Two of the statements from the video struck me.

Integrity –
Choose rightness over ease and convenience.

I immediately thought about how CPAs bill their customers.

I wonder, where is the integrity in hourly billing. Is it really “right” to take a customer’s information, rack up some hours, and send out a bill. In this scenario, the customer has no say as to the price until after the fact.

Would it not be more “right” to provide customers with up front pricing and payment terms regarding the services to be rendered?

Courage –
Follow your conscience instead of “following the crowd”.

Currently in the CPA industry, “the crowd” is billing by the hour. Yet, there are CPAs and Chartered Accountants around the world who are following their conscience and providing up front pricing.

Ask your CPA about their core values. Are they “just words”, or does your CPA “Walk the Talk”?

It's What You Stand For

“It’s not what you make. It’s what you stand
for.”

Jim Collins

With that in mind, many businesses will create a mission statement and establish a set of core values.

The first step is to create a mission statement and establish a set of core values. The second step, which many businesses fail to do, is to incorporate the mission statement and core values into everything the business does.

Take, for example, a CPA firm. Let’s say that they establish Integrity as one of their core values. If you call that firm and ask for a price for various service, more likely than not, you will get a response similar to this: “Our fees are based on the time required by the individuals assigned to the engagement, plus direct expenses. Individual hourly rates vary according to the degree of responsibility involved and the skill required.”

How does that response answer your question? It doesn’t. And, where’s the integrity in that?

In order to stand for something, a business needs to have a mission statement and a set of core values. And, these must be incorporated into everything the business does, including pricing policies, sales process, product/service offerings, customer selection criteria, etc.

Does your CPA stand for something? Do they have a mission statement and a set of core values? Have they incorporated these into everything they do, including pricing? Or is there a disconnect between what they say and do?

On a final note, is you need to create a mission statement, establish a set of core values, and incorporate these into everything your business does, talk to a Principa CPA. He/she has the tools and special worksheets to get you started and complete the process.

Another Accountant Counts The Ways

Earlier this week, an accountant from Texes sent a letter to Dear Abby suggesting ways that clients can "help out" during tax season.

I couldn't disagree with this accountant more.

Here's my response:

Dear Abby,

As a CPA, I was horrified when I read the letter from Sleepless in Texas (03/26/07), the accountant who listed ways to help out during tax time.

I encourage your readers who recognize their CPA in that letter to change CPAs at once. There are plenty of CPAs who enjoy their work, enjoy their customers and organize their accounting business so that they are well rested and alert to provide the best service.

I propose the following ways to help out during tax time:

1. Do feel free to drop by anytime. You are always welcome in our office. We hope you feel it is a place where you can get things done, solve your problems and gain peace of mind. If your primary CPA is not available, you can meet with one of our other highly qualified Team members.
2. Tell us about your children, family, business, hobbies, etc. The more we know about you the better we can serve you and provide you with appropriate advice and solutions. Arrange to come in more than once a year. The most valuable service we offer is proactive planning.
3. Be honest with us up front regarding your budget for professional services. That way, we can design a fixed price agreement to suit your needs before work starts.
4. Encourage your family, friends and colleagues to call us if they need help. Referrals are the best way you can thank us for a job well done.
5. If you have a question regarding the financial consequences of a decision you are trying to make, call us. After all, your fixed price agreement includes an annual consulting agreement to discuss such matters. Of course, if your questions require additional research and analysis, we will issue a change order and provide you with up front pricing for the additional work.
   
   Sincerely,
   
   Well Rested in California

To read the original letter from Sleepless in Texas, visit:

http://www.uexpress.com/dearabby/?uc_full_date=20070326

If this link is no longer available, I can send you a copy of the letter from Sleepless in Texas.

WHAT IS AN FPA?

In last week’s blog, I mentioned that business owners might want to consider including unlimited assistance in hiring bookkeepers and consultants as one of the services in the annual FPA you have with your CPA.

At this point, you may be asking yourself, “Just what is an FPA?”

I discussed FPAs as part of my November 29, 2006 blog on year end planning. I think it’s time to re-visit the topic.

An FPA is a Fixed Price Agreement between a customer and his/her CPA.

Through the use of an FPA, you can set the price and payment terms of your accounting services for the year. Further, the FPA will define the scope of services to be provided by the CPA and include any responsibilities of the business owner. In addition, the FPA should include the CPAs service guarantee.The advantages of an FPA are numerous.

• The business owner is relieved of any uncertainty regarding the amount of his/her accounting bill.
• The business owner can manage cash flow according to the payment terms of the FPA.
• FPAs break down the barriers of communication between the business owner and the CPA.
• The service guarantee provides the business owner the comfort that he/she will receive the quality of service he/she deserves.
• The business owner is free to attend to other aspects of his/her business.
• Payments to the CPA can be set up as memorized transactions in the accounting system.
• The FPA typically includes ongoing access to the accounting, tax, and business advice the business owner needs on a fixed-price basis. The business owner is not inhibited from seeking timely advice by the fear of a clock running endlessly. This offers the business owner access to the accumulated wisdom of the firm through CPAs with substantial experience who can help enhance the company's future and achieve its business goals.

So the next time you need professional services from your CPA, sit down and negotiate the service and pricing terms ahead of time, and have them documented in an FPA.
Your CPA has sample FPAs on the Cd that came with his/her copy of the Professional’s Guide to Value Pricing. Samples if simple FPAs are available in the Resource section of the Verasage web site. www.VeraSage.com

Sometimes Someone Else Says It Better

I believe that Knowledge Worker based businesses (CPAs, lawyers, technology consultants, marketing consultants, etc.) should Value Price their services, and provide customers with a Fixed Price Agreement up front.

Many others believe the same way. Some of them started The VeraSage Institute. The VeraSage Institute is the most revolutionary think tank for professional service firms. They challenge the professions to break free of practice methods that hurt the profession, undermine their purposes, and fail their customers.

Among their quests: Burying the Billable Hour.

This means eliminating hourly billing and the timesheets that go with it. Professional service firms are encouraged to run their firms by “pricing on purpose” and making customer service and customer value number one priorities in their practice. Such firms need to re-align their corporate culture, and also recognize that their team of professionals are knowledge workers, not machines.

In order to assist professional service firms with these goals, they have developed the VeraSage web site. For more information, visit: www.verasage.com

As a result of their quest, the founders and followers of VeraSage, spend much of their time dealing with the technical issues of “how to” make the necessary changes. Ron Baker, CPA (the original value pricing guru), recently took time to reflect on this, and remind professionals, the real reason for value pricing – to better serve our customers. To read Ron’s blog, visit: http://www.verasage.com/index.php/community/comments/its_the_quality_of_life_stupid/

More importantly, read Chris Marston’s blog he links to at the end of his blog. Chris is one of the founders of the Exemplar law firm, a law firm in Boston dedicated to the principles of Value Pricing. I could not have said it better myself.

“If you keep doing what you’re doing,
you’ll keep getting what you’re getting!
One definition of insanity is to keep doing
the same things and expecting different results.”
Stephen Covey

Recently, I had a meeting with a prospective customer.

It seems that he is disappointed with his current CPA, and is looking to make a change. Last year when his income tax returns were completed, he had a sizable balance due. This forced him to borrow money to pay his taxes. He felt that there should have been a more proactive approach towards planning on the part of the CPA, and that his CPA should have warned him well before his returns were due that a large payment would be needed.

For years he had been paying his CPA by the hour. The final bill usually came within the $500 range. Although, one year he was not pleased when the bill was $850.

This scenario point to one of three situation:

1. The CPA routinely charges less than $1,000 for a tax return. In order to make enough money, this means that the CPA must prepare 500 – 1000 returns each year. That’s a lot of returns! When a CPA takes on that much work, she is unable to provide quality service and has little time to be proactive when it comes to tax planning.
2. The client assumed it was the CPAs responsibility to take the lead in tax planning matters. The CPA assumed that if the client was interested in tax planning, then the client would ask. Hmmm… what is it they say about assuming? (Note: In this paragraph I used the term “client”. That is because in these situations, CPA call their customers “clients”, and customers act like “clients”. More about that in another blog.)
3. Somewhere in the relationship, the client identified himself as a $500 client. The CPA treated him accordingly.

The prospective customer came to me hoping to find a CPA who was more interested in his business and more interested in providing proactive planning services. What’s interesting, though, is that when I asked his budget, he said: “I’d like to stay in the $500 range.”

LESSONS TO LEARN

To paraphrase Steven Covey:
If you keep paying $500 for accounting services, and expect better service – You’re crazy!

Communicate with your CPA. Let her/him know what level of services you want, and what your budget is. Be willing to pay for quality work and service. What is it they say about paying for advice? “Good advice never costs, it pays.”

Be sure you have properly identified yourself with your CPA. Every CPA firm should have a definition for being an A, B or C customer. And, they should be willing to share the criteria with you.

Be willing to change.

Never be surprised by your CPAs services or their bill. Get a fixed price agreement in advance.

Remember – You’re the customer.

HOW I HANDLED THE SITUATION

I provided the prospective customer with a proposal. The proposal had six different service levels, and each level was priced accordingly.

Year End Planning

Successful businesses, small and large, plan for profit. One of the primary tools used for profit planning is the preparation of an annual budget. The problem with preparing budgets is predicting the unknown.

One way to solve for the "unknowns" in your budget is to get guaranteed pricing from your vendors and service providers. This may not be possible with most of your vendors and service providers, but one place to start is with your CPA.

In progressive forward thinking CPA firms where an emphasis is put on providing total quality service and on the value of the services to the customer, the billable hour is not used. Rather, Fixed Price Agreements (FPA) are used.

As a customer, you do not buy hours from your CPA. Thus, your CPA should not sell time.

Instead, you and your CPA should sit down and decide together what services you value, and how much you should pay for these services. During the meeting, you should also discuss payment terms and any relevant mutual commitments. Then an FPA is prepared that states what you agreed to in the meeting.

With the creation of an FPA between you and your CPA, you have one less budget item to worry about.