How Professional Service firms can avoid risky engagements

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The client selection process is critical

Many professionals focus their energy on bringing in high revenue clients. But such efforts don’t necessarily lead to high quality clients. That’s what makes a formal client selection process so important.

An effective process can improve profitability; reduce stress, billing-related disputes and reputational damage. Make sure the professionals in your firm prioritize this vital aspect of managing a professional service firm.

Categorizing current clients

Client selection isn’t a process reserved for prospective clients. In fact, you should review all existing clients to determine whether any of them are weighing you down. Start by applying the 80/20 rule to identify the 20% or so of clients that likely account for 80% of your revenues. Research has shown that these clients often require only 20% to 40% of your time – making them even more appealing.

You can further distinguish your clients by assigning them letter grades of A, B, C or D. Clients in the A category are the cream of the crop – they pay their bills on time, provide interesting work and send you valuable referrals. B clients have some minor flaws (perhaps they occasionally operate in “crisis” mode; see “Signs of trouble” later in this article) but are otherwise desirable clients. C clients can be uncooperative or less lucrative or they may harbor unreasonable expectations. And D clients are miserable to work with. They’re demanding, complain constantly and quibble over every line item on an invoice.

Now comes the hard part: Drop all your D clients and those C clients that can’t be brought up to the B level with a little work. Just make sure to review your profession’s rules for the proper procedures before you end any engagements.

It may seem like you’re tossing away good money by “firing” clients. But these clients are likely costing you time, stress, your reputation and other factors. How many hours, for example, do your partners/shareholders or billing department devote to collections?  Do you really want your best people working with this type of client?

Developing a best practice for accepting new clients

The best way to avoid awkward dismissals of C and D clients is to avoid establishing relationships with these clients in the first place. An effective client acceptance process can help your firm ensure a consistent acceptance process and avoid risky clients. A new client should not be accepted without the approval of a partner/shareholder.

You don’t have to suffer annoying, uncooperative or slow-paying clients. If current clients demand more energy than they’re worth, take steps to end those engagements. To prevent future problems, develop a client selection process and require all of your partners/shareholders apply it consistently.

Signs of trouble

Risky clients often wave red flags early on. So that you don’t waste your valuable time, be wary of those who:

  • Have already gone through multiple professional relationships,
  • Bring a matter outside of your expertise,
  • Have unrealistic expectations about what can be achieved,
  • Express a desire to “get revenge” or achieve other negative outcomes,
  • Have a bad attitude about professionals,
  • Don’t want to listen to, or act on professional advice,
  • Operate primarily in a crisis or rush mode, and
  • Don’t provide the signed retainer or other requested documents promptly.

If you would like additional information or to discuss the topics mentioned, please contact Jim Wagoner at 317-260-4428 or jwagoner@greenwaltcpas.com