I recently had the pleasure of spending a few days in Naples, Fla., with friends from high school. The husband and I had both worked for a CPA firm, and we talked about all the people we knew in common.
In the course of the conversation, he mentioned a concept with which I have always had trouble.
Many professional firms have a policy of requiring a certain number of billable hours from each staff member over the billing cycle. From the firms’ standpoint, that is a viable method of profit management. From the clients’ perspective, abuses can arise.
If you are a client for whom services are performed at the end of a billing cycle, you may become the client whose services are used to fill a quota. There are several ways this is accomplished, for example padding the timesheet with extra hours or adding unneeded products and services.
When a client enters into an agreement for services with a professional firm, the firm’s largest cost is labor. That labor’s revenue is based on the number of billable hours the service firm attributes to you. Unless you personally watch the work being done, you have no way of knowing whether you were treated justly. In a large firm you may never even meet the person who does the work and you may have no idea what that person is capable of regarding the effective use of time.
As a client, your concern should not be how long the work will take or what the firm charges per hour. Your question should be: How much is this going to cost and am I going to get what I need?
Do you know the difference between a $150 per hour CPA and a $300 per hour CPA? It is $150 per hour. The billing rate does not guarantee quality, and where the CPA went to college does not guarantee competence. What’s the best measure of quality work? Reputation.
There may be another reason to watch the hours attributable to your service: People in the professions are human. They make mistakes and they may have events take place that put a heavy burden on their emotions or finances. It may be illness, loss of a large client, a 2007-style financial meltdown or family issues. In 1986, my mother died in August, my brother died in October, and my long-term receptionist and dear friend Sally Korson died in November. These events happened outside of tax season and I had an excellent staff, so no problems came of it.
If the professional you are dealing with seems distracted or off their game, ask if there is something wrong. Have an open and direct conversation about your concerns.
Another potential problem is the word processor. I have seen disputes over services because it appeared the professional billed for even a minor change as if they had to retype and proof the whole document.
We all know it takes only minutes to change a few words in a document, tax return, financial plan, etc. Every time that document is changed, however, it must be carefully checked for the ramifications of those changes. The worst-case scenario is when changes are made to documents at great cost for a few minutes work, and the service provider does not reread the documents after rerunning them. It may cost the client a lot if all the ramifications of what appears to be a simple change have major effects.
Proof of this is an old joke about an attorney (CPA, insurance professional, doctor, actuary, etc.) who dies and finds himself at the pearly gates. St. Peter looks over the required paperwork for entry to heaven. He looks at the new prospective angel and looks perplexed. He says, “You look 50 and your birth date says you’re 50, but your timesheets show that to put in that many billable hours you would have to be 103.” I first heard that joke around 1960 so it's not a new issue.
I can see where some professionals might be offended by this article, but they need not be. I have only known of a few professional firms where this was a problem. There are bad apples in every barrel but that that does not speak to the quality of the other apples.
If you have a grievance against an attorney, CPA, insurance professional, financial planner, etc., they belong to associations such as the Michigan Bar Association, Michigan Association of CPA's, etc., with which you can air your grievance. If your problem is with an organization that has a license to practice in Michigan, you can contact the state licensing boards. No professional wants to deal with a complaint to the state board.
A caution: There are some irrational people out there. Make sure your complaint is well founded and give the person with whom you are unhappy an opportunity to present their case for resolving your grievance.
If you are taking advice from someone lacking the proper credentials or licensing in the pursuit of saving a few dollars, take this advice from a person who did business in Grand Rapids for more than 40 years: People with the proper education and licensing have put a lot of money and effort into becoming competent in that field. Their livelihood is at risk should they act incompetently or unethically. If you follow the advice or engage the services of an unlicensed service provider, you will pretty much get what you pay for.
Sometimes things go bad in a business deal because the attorney, accountant, broker, buyer, seller, etc., either made a mistake or was dishonest. If you are not mortally wounded financially or physically, I have a thought for you.
When I see people emotionally distraught over problems with professional services, I think about the elderly clients I had in the 1970s who were Auschwitz survivors. They had been advised to give one-third of their stock to each of their two key employees to secure their services. Upon execution of the agreement, the two employees — now majority stockholders — took over and fired the couple. They were not bitter or angry. The tattooed numbers on their wrists attested to the fact they had been through much worse.
Paul Hense is the retired president of local accounting firm Hense & Associates and past chairman of the Small Business Association of Michigan.