Tom Talks Taxes - June 3, 2022

The ins and outs of ending a client relationship

Kelly Phillips Erb’s article Many Unhappy Returns: How to Deal With a Bad Tax Relationship offers important advice on how to potentially salvage a difficult relationship with a client. Termination shouldn’t always be the first intervention; it should usually be the last, especially if the unresolved issues can be rectified with open communication and changes by the client and/or the tax professional.

There are some situations in which client termination may be the best option:

Abusive clients. Clients should be courteous to you and your staff at all times. Everyone has a bad day; however, any client that is consistently rude, abusive, or mean to you or your staff should be terminated. A positive work environment leads to happier workers and satisfied clients. Abusive clients are toxic to the entire tax office. Their dollars aren’t worth the greater damage they cause.

I don’t believe in increasing fees for bad behaviors, or the so-called “pain-in-the-ass” (PITA) fee. Terminate the relationship! You don’t want to work with the client; a better one will come along.

Insufficient exchange of value. Your services may be a good deal for the client, but they may not be a good deal for you. Perhaps the client is paying under your normal or average fee. Maybe working on the client means turning away higher paying ideal clients with whom you’d prefer to work.

An engagement should be a two-sided mutually beneficial arrangement. Tax professionals have a choice in whether to offer an engagement to both existing clients and new prospects. We don’t have to help everyone — and we truly can’t.

Too many clients. You may love all your clients, but do you have too many to meet promised service levels, offer much needed (and more valuable) advisory services, and work reasonable hours (and, no, 60 hours or more a week is not reasonable)? I’ve seen this problem often post-pandemic as postponed tax return deadlines allowed tax practices to service more clients during the extended filing season.

One way to slim down a book of clients is to raise everyone’s base fee by a significant amount: the idea is that the increased revenue from those who stay will offset those who leave. With demand for tax professionals high, you may find that few-to-no clients actually leave if you raise fees (though you’ll have more income to compensate you for the overwork).

You can also sell a portion of your client base to another firm who might welcome that type of client at that price point. This would allow you to recover some of the value from building up that client base.

To summarize, we should be doing the following each and every year:

• Clients who are abusive are simply let go with no regret or worry. You deserve better.

• Engagements that aren’t mutually beneficial are not renewed. Only you can determine if this is the case or not, and it may not be solely a time or money consideration.

• Tax practices establish a maximum client capacity to facilitate reasonable work hours and high quality work product. Prices are set to meet revenue goals at that ideal firm size, and excess clients are let go or sold off.

Termination is a harsh term — it just feels bad to say we are going to terminate a client relationship. We don’t have to make it a bad experience for the client. While the client will likely be upset (and rightly so), there are steps you can take to minimize friction with the soon-to-be ex-client and provide education and support in the transition.

When terminating a client, consider the following actions:

Provide all client records upfront. Make all of the client’s records available in your online portal before communicating to the client your intent to terminate the relationship. This includes tax return copies going back six years, bookkeeping information, payroll information, and depreciation schedules (which should be provided to the client each year anyway with the tax return).

Communicate the termination early. Send emails or letters in the summer or early fall if possible; do not wait until November or December! Your client needs time to find a competent tax professional. We want to set them up for success with another firm.

Use kind yet clear language. You don’t need to provide a specific reason for your termination decision. However — and this is important — never blame the client or their behaviors, even if you want to tell them off badly. That will simply cause conflict and encourage the client to leave a negative social media review. I prefer a short-and-simple neutral explanation such as this:

I want to thank you for being a client of our firm. We have appreciated being able to provide services to you this past year.

Each year, we evaluate our business performance and goals to ensure we provide the highest quality work product. This evaluation includes many factors, including the number of clients we service as well as the types and level of service offered.

Based on this review, we have decided that we are unable to provide services to you in the future. We know this is an inconvenience, and we apologize. We will do our best to ensure the transition to your new firm will be smooth and seamless.

Limit future involvement. The termination letter or email should set clear guidelines for the provision of services, removal of documents, and transition assistance (if offered). Here is some sample language:

All services to you will end on June 30, 2022. After that date, you are fully responsible for all tax, financial, or accounting matters, and we cannot have any further involvement except as outlined below.

All of your documents are in your portal. Please download them immediately and retain for your personal records. Your portal access will be discontinued on December 15, 2022 for data security reasons. Requests for documents after that date will be subject to a $100 document retrieval fee as they will be located in a secure archive.

We are happy to offer transition assistance to your new firm to ensure they are up-to-speed on your matters. Please contact us to schedule a phone or Zoom call with all parties, including yourself. Due to workload constraints, we cannot offer more than one hour of transition assistance, and we cannot provide transition assistance after January 15, 2023.

Don’t change your mind. Stand your ground! Do not let a client manipulate you or use emotional blackmail to induce you to keep them. You are doing what is best for you, and that is just fine. Relationships, whether personal or professional, sometimes end. Trust me — the client almost always would have no problem terminating you, so don’t feel guilt as the one that is terminating the relationship.

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