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All practices have good and bad clients, so why not start the new year by having a close look at your client list and getting rid of those that are unprofitable and unrewarding?

This article was first published in the January 2013 UK edition of Accounting and Business magazine.

New year, new start. Accountancy practices enter 2013 in the hope that the recent emergence from recession will be sustained, that the economic conditions will improve or that this year will see a return to growth.That said, there remains uncertainty around the prospects for the next 12 months. The eurozone crisis continues to loom large, and many companies still sit on hoards of unspent cash, while there is increasing concern at the number of so-called zombie companies in the UK economy.

But even if there was cause to assume that things were really on the up, it would be no reason for complacency. And one of the largest areas of inattention for accountancy firms is the client list.

Anecdotally most firms realise they have a collection of valued clients, as well as a long list of customers they would be better off without. It’s a discomfiting thought and the new year is a time when the long-delayed effort to spruce up the client list can finally be tackled.

What’s the problem?

The issue for many firms is that their partners and their staff find themselves dedicating large chunks of their time to clients who demand much but produce less than satisfying margins. Indeed, whether big or small, generating chunky fees or pocket money, some clients may account for hours of uncharged time, or simply fail to pay their bills, making them uneconomic. That conclusion can lead to only one thing – parting company with a client or, in extreme cases, carrying out a general purge.

The trouble is many practitioners veer away from confronting the issue.
According to experts, facing up to the idea that some of your clients are less than welcome is never an easy task for practitioners. The very act is fraught with ideas that go against the grain. Heather Townsend, author of the Financial Times Guide To Business Networking and a new tome How to make partner and still have a life, cites a litany of issues – cultural and structural – that prevents firms from weeding out the chaff from their client portfolios. She says accountants are by nature ‘farmers not hunters’. Culling clients, possibly nurtured over several years, in order to pursue new prey is not an ingrained reflex.

Accountants, Townsend believes, are all too ready to shy away from difficult conversations. More importantly, a close examination of the client portfolio is therefore not built into strategy. Worse still, Townsend
makes the point that in many firms a partner’s influence may be determined by the size of his or her own individual portfolio of clients. Cutting clients is therefore undermining influence within the practice. Never an attractive option.

That view is shared by Phil Shohet, a director at the consultancy Kato. The worst offence involves partners asking their credit control departments to avoid pursuing a client for their invoice because they are concerned about upsetting them, he says.

In some cases, big portfolios can give partners the leverage they need to demand a bigger profit share, even if their clients are not exactly star performers, undermining the argument for dumping clients that are simply
too much trouble. If partners are measured on the size of their portfolio, the problem could go from being cultural to structural.

Townsend believes this leads to ill-considered ways of managing what appear to be underperforming partners. ‘What they typically do is have a run of poor results and then they will have a night of the long knives. What they won’t do is tackle the situation much earlier,’ she says.

Damage to reputation

There are other fears though, with perhaps the greatest of all for a firm being reputational damage. Julie Adams, managing partner of Menzies, believes a wholesale clear-out of clients could lead to denting a firm’s reputation, especially at a local level.

Of course, this is not just about a long tail of small, poorly performing clients. A firm could find itself overly reliant on a small number of large clients that are still too demanding and not paying enough. Shohet quotes an example of a firm earning hundreds of thousands of pounds from one particular client, but doing enough work to charge twice as much. That so much time is uncharged is a major drain on the firm’s resources.

This brings us back to the difficult conversations that need to take place. The results may not be as painful as you might think. The issue needs to be confronted and can turn to an advantage, taking the issue from merely processing work to deepening the bond between client and service provider. Adams diagnoses the problem like this: ‘We tend to deal with the assignment rather than the relationship.’ She believes it’s communications that need to be improved. She gives the example of approaching a client to resign their work over historic difficulties, only for the client to say they were never told there was a problem. The difficulty
was resolved and the client remained with the firm.

But what leads partners into leaving problem clients to fester until the only way appears to be to resign? For some the problem leads to deeper underlying issues with the way a firm is structured and its partners measured and incentivised. Shohet says: ‘Purges go right to the heart of a firm and its business model.’ Peter Gillman, managing partner at Price Bailey, says the problem ‘strays into areas of performance management’. Gillman’s answer at Price Bailey was to dump fee or billing targets for partners. The targets now function only at a departmental level. The result is that partners are now more willing to share work around the practice in order to provide the right service level.

‘By getting rid of partner statistics, it means that the client and their work is done by the right people,’ says Gillman. He adds: ‘You can have a purge, but if you give a partner a fee target, is he or she going to continue that purge? Probably not.’

Interestingly, the change at Price Bailey took place after Gillman took over running the business. Which segues into a further issue: leadership.

Who’s responsible?

Taken together, the failure to manage a client portfolio correctly and the need to resolve the underlying causes falls to the person running the firm. ‘It requires a strong managing partner,’ says Shohet. And these leaders encounter their own difficulties, especially if they are trying to run their own client portfolio, he adds. Townsend agrees, insisting it all comes down to ‘strong leadership and strategy’. She advises that a firm needs a clear vision of where it’s going. But this needs a leader who can sometimes be undermined by the firm’s own
founding principles.

In short, according to Townsend, the role of the managing partner is often poorly defined, leaving the incumbent without the necessary authority to act decisively. ‘You get in on a very loose mandate and then you wonder what you are there for,’ she concludes.

Gavin Hinks, journalist

 

Last updated: 7 Apr 2014