Management consultant and author Peter Drucker once observed, "We will never achieve our best potential if we are not willing to abandon old things ... clients, processes, policies, products and services, employees. We can't do great new things when the bad old things take up all our attention and resources."Abandoning "the bad old things" - in our case, D-level clients - is not something that comes easily to many in our profession, but I believe it's one of the most important things we can do to build our firms.
I know of few better strategies for building and maintaining a profitable public accounting practice than choosing and retaining the right clients. Most of us instinctively recognize the folly of trying to build a world-class firm with D-level clients, but all too often we persist in attempting to do just that.
As Tom Peters said, "It's axiomatic: You're as good or as bad as the character of your client list. In a very real sense, you are your client list." Our firms simply cannot be any better than our clients allow us to be.
* Every firm has some bad clients. That said, it's important to remember that not every difficult client is a D-level client. Some clients will always challenge us, but that doesn't necessarily make them bad clients. A little later in this article, we'll discuss some clear criteria for identifying D-level clients. For now, let's just say that a bad client is one who's not worthy of your time and resources - not now, not later and not ever.
* D-level clients cost us a fortune. They seem to live in the realm of the urgent and important, and are highly skilled at trapping within that energy-consuming realm all who serve them, including us.
Not only do bad clients occupy space and devour resources that could be dedicated to more profitable and rewarding clients, they also add enormous stress to our lives. Although impossible to calculate with any certainty, I believe the cost of that stress is tremendous.
* Most firms have a poor screening process in place for selecting new clients. The primary purpose of such a process is to detect as early as possible whether a prospective client is A-level, D-level or something in between.
It should come as no surprise that the more time, energy and money we invest in pursuing a potential client, the harder it becomes to walk away from that prospect. Unfortunately, the only thing I can think of that's worse than pursuing a D-level client is landing one. The fact that so many firms struggle to fire their bad clients only underscores the importance of a solid screening process.
* A-level clients are the only ones for whom we can provide A-level service for any length of time. Because of who they are and what they bring (or don't bring) to the table, it's simply impossible to sustain exceptional service to bad clients. A-level clients contribute significantly to successful engagements and long-term, mutually beneficial relationships, not to mention our quality of life. Bad clients do just the opposite.
* Most firms are better at talking about culling bad clients than they are at actually doing it. As challenging as it may be to get some clients in the front door, we frequently have more difficulty escorting them out the back door. All too often, the difficulty of firing bad clients is driven by the "book of business" mentality. If book of business is still an important differentiator in your firm, you can expect great difficulty getting rid of your D-level clients.
Why we hang on
In addition to the "book of business" mindset, I believe that there are several other important reasons why we hold on to clients whom we should have fired long ago.
The biggest of these is fear.
Fear of what? Fear of the conflict that may occur as we discuss the proposed firing internally, or as we deliver the message to the client. Fear of being perceived as wasteful for walking away from a client in whom significant resources have been invested. Fear of the repercussions that may occur as a result of the lost revenue. Fear of reprisal in the community or from those in the firm who question the decision to drop the client.
There are other reasons, too. Pride may prevent us from admitting that a client we worked hard to win should never have been courted. Stubbornness may make it difficult for us to give up on a client that has brought little but angst to the firm. We may have bought into the notion that any growth is better than no growth at all, or we may just resist change, even when it promises welcome relief from a difficult situation.
Bid the bad farewell - now
Persuasive though they may appear, the excuses we offer for retaining bad clients are far less compelling than the reasons for firing them. And why is now an especially good time to begin removing D-level clients?
* There's no lack of work. The market is booming and opportunities abound.
* In this day of skyrocketing insurance premiums and expensive litigation, we need to proactively manage our risk. One key for doing this is only taking on good clients and solid engagements.
* With today's scarcity of quality recruits and the difficulties that many are experiencing hanging on to their best employees, many firms are challenged by capacity. In such an environment, devoting scarce resources to D-level clients makes no sense.
* Saying "No" to the wrong opportunity positions us to say "Yes" to the right one when it comes along - which it will.
The removal process
The biggest challenge that firms face in firing their D-level clients is the lack of a solid process. Some firms may not even recognize the need for an ongoing process, mistakenly viewing the removal of bad clients as an occasional or one-time event. John Maxwell once wrote, "We overestimate the event and underestimate the process. Every fulfilled dream occurred because of dedication to a process."
The potential impact of your approach to firing D-level clients is huge. Here's a five-step process for firing bad clients that has proven to be very effective in many firms.
Step No. 1: Develop criteria for identifying D-level clients. The criteria you use to identify bad clients will be more comprehensive, better accepted throughout the firm, and easier to apply if you form a team to develop them. The best team for developing these criteria will be one that includes a cross-section of employees from many levels in the firm.
Standard criteria for evaluating potential clients have been in existence for many years, and you will likely want to keep them in mind as you develop your list of D-level characteristics. These standard criteria include: the amount of annual revenue, payment history, growth potential, referral history and potential, profitability, degree of risk, timing of the work to be done, client expectations, and the "enjoyment factor."
The criteria for evaluating potential clients are, for the most part, objective, and it's entirely possible that a D-level client could score well if only these standards were applied. Fully understanding the distinguishing characteristics of bad clients is essential.
Typical D-level clients can't attract and retain quality staff; have a weak upper management team; demonstrate low commitment to technology; have unreasonable expectations; show little willingness to follow advice; have poor teamwork and commitment; lack a thorough planning process for change; pay late; expect miraculous results on shoestring budgets; have an unerring instinct for the most conservative solutions; abuse your people; hate the idea that you may make money on their business; constantly file late; are poor record-keepers; always need their work yesterday; turn their problems into your problems; and continually put the firm at risk.
Determining whether a client possesses a few or many of these characteristics will go a long way toward identifying your D-level clients. If you're still unsure after evaluating a client against this list, just ask your staff.
Step No. 2: Set a reasonable goal for removing D-level clients. Once you've become skilled in identifying your bad clients, it's important to set a reasonable goal for the number of clients (or percentage of your client base) that you'll remove each year.
Remember, firing D-level clients is not a one-time event, nor is it something to be done haphazardly or sporadically. It's a vital, ongoing process that you'll want to perform on an annual basis. A realistic goal for most firms is to remove between 5 and 10 percent of their clients each year.
Step No. 3: Identify specific clients to be removed and assign responsibility. As we consider Step No. 3, I need to insert a caution. It's been my experience that many firms simply skip the first two steps - developing criteria for identifying their bad clients and setting a reasonable goal for removing those clients - and jump right to Step No. 3.
To me, that's a little like showing up unannounced at the hospital prepped for an organ removal without ever having visited the doctor's office or submitted to the appropriate medical tests. Taking such an approach to our body's health would be foolish at best; applying the same strategy to improving the firm's health through the removal of bad clients seems to me nearly as unwise.
Once you've identified which are your D-level clients and how many you plan to remove each year, the next step is to select those to be removed during the current year. Following closely on the heels of that decision is the selection of those individuals who will meet with specific clients and announce the firm's decision.
Step No. 4: Schedule a face-to-face meeting with each targeted client. The meeting no one wants to be responsible for doesn't have to be unpleasant or even particularly uncomfortable. Here are some tips for making these meetings successful:
* Always meet face-to-face.
* Be cordial, and recognize that this is a challenging meeting for everyone (not just you).
* Avoid burning bridges that you may need to cross later.
* Help the client see this as an opportunity to obtain service from someone better suited to meet their needs.
* Suggest alternatives and assist the client in obtaining service from someone else.
Step No. 5: Be accountable for following the process. It's absolutely essential that those who are assigned to fire clients return and report back to the partner group on the outcome of their meetings with those clients. This will help ensure that the meetings occur in a timely manner and are properly conducted.
Firing clients is a task that few will ever look forward to performing. Doing it in a sensitive, appropriate way is a learned skill, and with practice and feedback from others who have the same responsibility, most people will reach a reasonable level of proficiency and confidence.
A final thought
Best-selling author and speaker Harvey Mackay once wrote, "It isn't the people you fire who make your life miserable, it's the people you don't."
What is true in supervisory relationships is also true in the relationships we have with our clients. When we fire a D-level client, everybody - the client, the firm, and especially those most directly involved in serving that client - wins.
Sam Allred, CPA, is a shareholder in the Helena, Mont.-based firm of Anderson ZurMuehlen & Co. PC, and also serves as director of training and consulting concern Upstream Academy.
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