Avoid Client Pitfalls With Advisory Projects
You’ve got the client across the line, everyone’s excited about the next steps. You’re definitely in the ‘honeymoon’ stage of the advisory project.
Fast forward 3 months and some issues have developed. The project is not moving ahead as quickly as you both had anticipated. It’s taken more time than expected to put financial systems in place. You’ve yet to have a proper strategic discussion with the client as you’re not able to provide accurate and relevant financial reports.
At the same time, the client is starting to ask questions that really lie outside the scope of the agreed project. You don’t want to upset the client at this critical stage, so you don’t have the discussion you need to have about what’s outside scope of work. In the meantime, you continue to invoice the client on a monthly basis.
A further 3 months down the track and your client wants a meeting to discuss the scope of work. Progress has been slow and the client is unhappy with their return on investment. The advisory project is in danger of stalling.
This scenario is relatively common when accountants and clients come together for ongoing advisory projects. For many firms, it can be a real struggle to get some momentum and then to keep things pushing ahead. Often, projects are terminated within 1 or 2 years of commencement.
The process of managing advisory projects can be quite a lot more complicated than tax compliance work, especially when this work is provided on an ad hoc basis without the support of internal systems and processes.
The best place to start is to ensure that the upfront engagement is clear to all stakeholders. This means that you need to get up-front agreement on specific scope of work and level of communication, project timing and mutual commitment to the project. If this isn’t possible, then work out what specifically you can agree to and start with this.
It’s sometimes even worthwhile mentioning potential issues up front to more effectively manage expectations down the track. This might include a discussion on the timing of key project actions and the level of ongoing communication when client issues develop.
Follow these 5 key steps to really take control of client engagement for advisory projects.
1. Develop a template for service level agreements that focuses on (a) key actions with timings and responsibilities, (b) technical services to be provided (c) mutual expectations, (d) the level of ongoing communication and (3) the timing of project reviews. Take the time to go through each of these elements of the service agreement, rather than simply seeking the client’s signature.
2. Make a clear separation between different types of services to be provided when discussing scope of work and fee for service. Otherwise, clients are more likely to overestimate the value of compliance services and underestimate the value of advisory support. A client services menu is often an effective way of having this discussion.
3. When establishing the fee for services that include an advisory component, try wherever possible to include a buffer for the small additional matters that don’t necessarily warrant another discussion about fees. Up to 20% above time cost may be appropriate, as the advisory component of the fee will often be underestimated in any case.
4. Set clear and realistic expectations about the first 3 months of the project. Anticipate delays, especially if financial systems and reporting need to be established up front. If appropriate, talk up front with the client about the ‘j-curve of change,’ which anticipates an initial drop in motivation and outcomes as systems and processes are changed.
5. Set aside time for regular review of the scope of work. The longer the period of time between initial engagement and review, the greater the possibility that scope of work has changed. Ideally, the review should be at 3 months, 6 months and 12 months following commencement of the project. If there’s a problem with the agreed scope of work, then discuss it in a timely manner.
Let’s take a quick look at 3 real life scenarios.
1. The big project
This accounting firm was successful in engaging a new business client in an integrated advisory project incorporating tax compliance work, the set-up of financial reporting systems, regular monthly management reporting and ongoing external CFO support. The fee for service was in the range of $10,000 per month.
After 1 month, it was clear that the bookkeeping was in a poor state and required a lot more work than initially anticipated. Whilst the firm mentioned this in passing to the client, there was no documentation of the discussion or any indication that the fee could increase as a result. The accountant felt that he could resolve this relatively quickly.
After 3 months, it was clear that the project was unsustainable with the agreed fee for service. It took another 4 weeks to arrange a meeting with the client, by which time the project was beginning to unravel. The client refused to accept a change in scope of work and terminated the agreement without paying outstanding bills.
Clearly in this situation, the firm committed to a range of services for a fee without considering all the potential issues and challenges associated with implementation. A step by step engagement process would have been more effective for a project of this size.
2. The overly-friendly client
This entrepreneurial client came to the firm wanting support in getting financial systems under control and some ongoing business advice. He was upbeat about the future of his business, but unspecific about the level of ongoing advice he required. He requested that the firm invoice him on the basis of time cost. A formal engagement letter was not prepared as scope of work was uncertain.
In ongoing discussions, the client was vague about his needs and kept changing his mind. He would not complete agreed actions in a timely manner. However, he was in weekly communication with the firm in relation to a number of ongoing business issues. The WIP accumulated and the client was eventually invoiced for the first time 3 months after the project commenced.
The client advised that he could not pay the invoice due to cash flow issues and agreed on a payment plan. The payment plan was not followed through and the accounting firm eventually appointed a debt collection agency. At that time, the client disputed the bill.
This client type is seen in most advisory firms. They appear friendly and engaging, but will not commit to specific scope of work or change scope continuously as work proceeds. The client manager should have insisted on a formal engagement letter with specific scope of work and agreement on how time cost would be invoiced. In this situation, monthly invoicing is essential to avoid unpleasant surprises.
3. The client with other issues
The client engaged the firm to provide tax compliance and business advisory support services on a quarterly basis. The relationship was proceeding well until the 2 partners of the client firm had a disagreement, at which time both asked for feedback and advice from their accountant.
Initially this advice was straightforward, but as the dispute developed, the issues became more complex. The client was aware of the increasing fee for service, but made no effort to decrease the level of ongoing communication with their accountant, who was keen to support where she could. Eventually, the outstanding bills got to a stage where the accounting firm had to stop work.
Scope creep often develops when there are critical issues that need to be addressed and there is no clear discussion about the impact of servicing these issues on the fee for service. Rather than continuing to service the client, the accountant may have been better off suggesting external mediation for independent feedback and advice.
For a trusted advisor, managing client relationships means always keeping one eye on scope of work and anticipating potential issues in relation to fee for service. Accountants are often reluctant to talk about scope of work and fee for service for fear of adversely affecting the relationship, but clearly proactive communication and engagement is more effective in the long run in retaining quality clients.
With ongoing advisory projects, it pays to anticipate future challenges and address them up front by spending more time outlining the terms of engagement in a formal service level agreement.
What do you need to do to be more proactive in managing client relationships?
This article was published on 27th January 2017 in Public Accountant – The Official Journal of the Institute of Public Accountants.
Click here to view published article
