Why more & more accountants are moving away from hourly billing
In the wake of the FOFA reforms there has been mounting pressure placed upon accounting firms to move towards fixed fee models. As clients increasingly focus upon billing models based upon value, not time, is this necessarily a bad thing?
Below are five reasons some accountants are already making this change.
1. Relationship Management
When paying by the hour, some clients become gun-shy about calling their accountant for fear of being sent a bill for the privilege.
Many accountants complain that their clients make silly decisions without consulting them. Few consider whether their billing practices have made their clients averse to contact.
By switching to fixed fees, this apprehension is removed and your clients will feel more comfortable contacting you for advice. Sure, you might spend a bit more time on the phone, but as you can build an allowance for this time into your fees this isn’t necessarily a loss.
The result is more frequent and more amicable communication with your clients. Not only will you build much closer relationships but you will also be able to head poor client decisions off at the pass, delivering greater value.
2. Cash Flow
A complaint of many accounting firms is that they draw the majority of their revenue during a few key months of the year. This can be frustrating when compared to business outgoings which are constant.
When fees are fixed in advance, this opens the door to better billing procedures for your business. For instance, if a client’s annual fees are fixed at $12,000 then it would not be unreasonable to split this into twelve monthly payments of $1000. This is much harder to do when the total value of the work is in question.
Fixed fees therefore allow revenue to be more evenly spread across the entire year, meaning fewer headaches in planning your budget.
3. Debtors & Work in Progress (WiP)
A benefit that flows directly from more regular billing is reduced WiP & debtor levels.
As multiple small payments feel less painful for clients than one big one, it is a lot easier for accountants to collect incremental payments. Payments can even be collected if work is only partially complete. Furthermore because the amount billed is steady and habitual, there is nothing for clients to query which impels them to pay more quickly.
Some accountants have taken this to the next level, moving their clients to monthly direct debits and virtually eliminating debtors altogether.
Imagine how much simpler life would be if you didn’t have to hassle your clients over outstanding bills. Would this free up your time for more important things?
4. Pre-empt Legislation
If indeed legislation is ever passed compelling accountants to provide fixed fee services this could mean being forced to make the change to fixed fees anyway.
Rushed changes, made ad hoc, often result in much more work overall. Some accountants have chosen to make the change to fixed fees now as this allows them to research, plan and implement new systems in a considered manner. This is much less stressful than the potential alternative of forced changes made under duress.
5. Sale Value
Because of the cash flow, debtor & WiP advantages outlined above, your business will likely enjoy a higher value should you ever decide to place it for sale.
The reason for this is that in most sales the vendor is entitled to collect their debtors and a portion of the work in progress. This entitlement often leaves a revenue vacuum for 2-3 months after settlement.
Purchasers must therefore keep capital in reserve in order to cover their running costs during this period. This problem is further compounded if the purchaser requires finance and needs to service a loan.
By eliminating this issue you n open the door to more buyers. These buyers may also feel they can stretch themselves a bit further on the sale price as they do not need to keep as much of a financial buffer after the sale.
In summary, there are a number of advantages to moving your accounting practice towards fixed fees. Whilst a legislative change seems unlikely in the short term, more and more accountants are likely to head this way as a matter of pure pragmatism.
