Newsletter – September 1999 A Framework for Good Client Relations
The following material is provided for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances. In business, as in life, it's all about relationships. And the best way to invite a claim against your CPA firm is to ignore good client relations. Yet it is surprising how few accounting firms view Client rotations as a key company attribute that demands formal procedures and daily attention. Does your firm maintain an official customer service strategy? Is each of your employees, from the receptionist to the senior partners, trained on good customer service techniques? If not, there could be hidden problems with your clients you are not aware of. And, at the first spark of trouble, these problems now bubbling just under the surface can explode into a crisis -- and a potentially devastating claim. Many firms, in a rush to enlarge their practice by wooing new customers, take their existing clients for granted. They fail to realize that the most cost-effective way to build a practice is to retain and obtain more work from existing clients. What's more, focusing attention on current clients is a sure-fire way to obtain referrals for new accounts. From a liability standpoint, maintaining good working relationships is crucial to foregoing expensive claims. Should a problem crop up with a client who considers you a good business partner, chances are the two of you can work toward an amicable solution. But should you cause a problem for a client who already considers your firm in less than glowing terms, then you are apt to be on the receiving end of their wrath, lose their business and face them in litigation. So what are the elements of a good client relationship that all of your staff should be aware of? Here are some important areas to consider when establishing an effective client relations program. Establish Open Dialog The first thing you need for a good client relationship is a firm understanding of exactly what service you are expected to perform. Open dialog is needed to make sure expectations -- on both sides - are clear and realistic. Start your relations with new and prospective clients by engaging in a frank discussion about your practice, the skills and capabilities of your staff and your preferred method for conducting business. Avoid the tendency to impress your now client by promising the moon. Address the limitations of your practice as well as its specialties. And discuss your potential client's business, too, with an ear out for potential problem areas. You can best demonstrate your breadth of experience and knowledge by building an understanding of your client's business. Ask probing questions about their policies and procedures. Ask about their needs and explain how your firm can be of help.
Engagement letters are the best hope to establish an equitable legal framework for a working relationship with your clients.
Make sure that your new or potential client is properly introduced to the people who will actually be working on the account. Put a face and personality behind that voice they will be speaking to on the phone. Above all, don't use your high-priced talent to sell your firm and then hand the work over to unidentified junior staff. That's a sure recipe for getting an engagement off on the wrong foot. Draft a Thorough Engagement Letter Cement the understanding of your scope of services in a detailed engagement letter. Before proceeding further, confirm that you and your client agree on both the scope and nature of the services you will perform. Although engagement letters are not required by law, they are strongly recommended by professional societies and management consultants. They are the best hope to establish an equitable legal framework for a working relationship with your clients. And should disputes arise regarding your fees or services, they provide a ready record to confirm intent and duty. Engagement letters also let your client know that you are the type of firm that approaches its engagements in a professional manner. Most clients appreciate the effort to clarify each party's roles and responsibilities. In addition to identifying the services to be provided, the engagement letter should cover any limitations of your services, client responsibilities, timetables, fees and billing arrangements, staff assignments and other pertinent conditions of the engagement. Keep Communication Channels Open Few things upset Clients more than a failure to promptly return their phone calls or keep appointments and other commitments. It is professional and common courtesy to respond to your client's inquiries promptly, even if it is only to tell them that you received their message but don't yet have the answer. Ascertain the urgency of their need and commit to a timeframe for making your next contact. Even if you don't hear from your clients, have your key staff maintain contact. Make visits or phone calls regularly (e.g., monthly or quarterly), keeping the client informed of the progress of your engagement. Above all, alert them to any problems at the first hint of trouble. That's when the difficulty can be solved in the most timely, efficient and amicable manner. Be Forthright No one likes to be the bearer of bad news. Unfortunately, those in the accounting profession are often required to report less-than-pleasing facts and figures to their clients. And often, a disgruntled client may feel inclined to shoot the messenger. While nobody is likely to sing your praises for delivering bad news, CPA firms are rarely sued for reporting the real problems besetting their clients. Downplaying or ignoring potential (but disclosable) issues is much more likely to lead to you being named a defendant in a subsequent lawsuit if these issues grow in severity and you failed to keep your client informed. Many wellintentioned accountants have been sued trying to keep their clients happy in this fashion. Speak Your Client's Language Every client has his or her preferred communications style. Learn it and follow it. If the firm prefers regular written reports, deliver them. If they prefer informal, face-to-face talks, accommodate them and then confirm your understanding of the conversation -- including action items -- in a follow-up report.
It is very common for CPAs, even individual offices, to develop their own unique shorthand or jargon based on industry-specific terminology. Terms like value, goodwill, review GAAP, GAAS and FASB are just a few examples of language that has a lot of meaning for you but probably very little meaning to your client. It is very embarrassing and frustrating to your client to constantly have to ask you to define terms. Worse, your client may nod knowingly while you discuss a situation in technical accounting terms, but he or she may actually be at a complete loss to understand the situation. That is dangerous to the client and to you if they make decisions and take action based on advice they thought they understood. Avoiding jargon, explaining accounting-specific terms and following up decisions and advice in writing will help avoid financially devastating misunderstandings. Don't Over Commit As a client comes to trust and rely upon its CPA firm, there is a tendency to ask more and more from this trusted advisor. Agreeing to do something you cannot do -- because you lack either the time or expertise -- is foolhardy. Not only will it eventually damage your reputation with your client, it could lead to mistakes and potential claim situations. Saying "no" to a client's request or added services, or admitting a lack of expertise in an area of practice can be difficult -- even embarrassing. You may feel the client will become disgruntled and possibly seek another CPA firm who can meet the new requests. However, from the standpoint of liability and for the sake of your long term relationship, it is far better to give your regrets -- or perhaps help arrange for those new services through a third party -- than to fail to perform professionally. Maintain Proper Distance Business relationships are often the basis of lifelong friendships. However, when it cones to an active client-CPA relationship, it is important to maintain proper distance. Otherwise, you may improperly compromise your independence and/or be faced with conflicts of interest. Independence is a cornerstone of the accounting profession. When personal or financial interests taint an accountant's work, professional liabilities are not far behind. Third parties, such as your client's clients, may assert that you were not performing independently and, therefore, the integrity of your work was adversely affected. AlCPA Ethics Rule 101, which deals with independence, prohibits a CPA firm from performing audits or other engagements involving verification procedures when a firm member: 1. Has a financial interest in the client (e,g., an owner or share-holder) or 2. Participates as a decision-maker (executive officer or member of the board of directors). In addition, involvement of family members with a client may also impair the firm's independence. Other activities that may raise questions of independence include: Negotiating transactions on behalf of a client Performing actuarial services that directly affect amounts involved on the client's balance sheet Consulting on areas that may create a problem in an audit, such as installing computer systems or setting up systems of internal control Conducting executive searches. Firms have even had problems when a CPA left the practice to work for the client. In general, additional activities performed for the client that are substantial in scope or involved with the core operations of the accounting system may compromise your independence. Remember that while independence is technically only a concern in audit situations, the public and often the client assume the accountant is without conflicting interests for every engagement.
When Problems Arise Following the precepts outlined above as part of a formal client service policy can go a long way to ensuring good client relations. And when problems arise, a solid client relationship is a goad foundation for finding a mutually satisfactory solution. Without this foundation, animosity, finger pointing, claims and lawsuits may follow. Despite your best efforts, however, client relations can sour. Next issue, we'll discuss ways to handle problem clients and -- if necessary - terminate your agreement for providing professional services. CAN WE BE OF ASSISTANCE? We may be able to help you by providing guidance relative to insurance issues, and even to certain preventives. Please call on us for assistance. We're a member of the Professional Liability Agents Network (PLAN). We're here to help.
"VIEWPOINT" is published as a service to the accounting profession. While the information contained herein is believed to be reliable, readers are advised to consult their own legal and insurance counsel for assistance in applying it to their unique situations.