WHEN it comes to billing clients, charging by the hour or offering a fixed-fee service is not a binary choice for small accountancy practices. It is an age-old dilemma: How do small accountancy practices work out the fairest, most transparent way of getting paid for their professional services?

The amount of time spent working on a client’s particular needs is often the yardstick by which to measure value, and therefore fees; rising costs and remote working also make this attractive to small and medium-sized practitioners (SMPs). But offering services for a fixed fee is becoming increasingly popular for compliance-type work — tax returns or basic bookkeeping, for example.

Balancing act

So, professionals face a balancing act when working out the best way to charge for their services. There are positive and negative aspects of both methods — from a client’s point of view, fixed fees give them certainty but time billing will give them the confidence that the work is not being rushed and that they are paying for the necessary expertise.

Ultimately, for a small practice it can come down to experience — knowing how long a task should take, the level of professional input required, and the margin that would be acceptable for the client and the partners in the firm.

AB spoke to three practitioners from around the world who all had their own preferences but yet there was one continuous theme that linked them — a hybrid approach that heeds client requirements and practice management at the same time.

Justify costs

Robert Belle, FCCA, is managing director of Smip Consultancy in Kenya, which he founded in 2016. Smip offers a full range of accountancy services — from basic bookkeeping to financial management, tax and advisory work. He also offers coaching to help clients with their day-to-day financial administration.

His clients — predominantly entrepreneurs, small businesses and NGOs — are mostly based in Kenya, though some operate in other jurisdictions.

“We like to offer package-based pricing which brings together a number of services,” he says. “We use value-based pricing, looking at our inputs, the industry in which the clients work and the level of expertise required.”

For advisory work, however, Belle prefers to use an hourly-rate pricing model, as sometimes his firm can be asked to do a deep-dive investigation, which can take up time and resources. The core of the firm is very small, with two employees, and contractors are then brought in on a project basis depending on the level of expertise required.

In terms of technology, the firm uses Sage One, which includes a project management facility to enable Belle to monitor inputs.

“Traditional practices have been bricks-and-mortar operations,” he says. “Now, with increased use of remote working, firms need to justify their costs to their clients. We have always been fully remote and are used to being transparent with the client. There might be reduced transport costs, but what about other costs such as technology and managing remote workers?”

He is clear about the advice he would give to other practices: “Don’t just look at what you can deliver; look at what the client needs. Think in relational terms rather than contractual — this helps you deliver value to your clients.”

Time still matters

“Time sheets are not going away,” says Sundeep Gupta, partner at ASA & Associates in Gurgaon, India, “but we use a combination of both time and fixed-fee billing, depending on the nature of the assignment.”

Gupta believes that Indian businesses are comfortable with fixed fees as this allows them to cap costs, which can become more variable under an hourly rate system. Typically, though, his firm would charge a fixed fee for routine compliance work such as tax filing and payroll, whereas hourly rates would be used largely for advisory work, which can be more complex.

“You could be looking at the impact of a transaction and how reporting under a particular international financial reporting standard could be affected,” Gupta says. “Then there is M&A work, which can often involve negotiations, in which case we would use a hybrid of a fixed fee plus additional hours. Even then, a CFO would like an estimate of the hours likely to be incurred.”

He adds that accountants need to remember they are not selling a product. “We are selling our time and our experience,” he says.

Technology has also had an impact on the way the practice is managed. “We used to record our time on paper, but now we can have continuous analytics through our ERP time management system,” he says. The firm uses its own proprietary practice management software, allowing every partner to analyse time spent by their teams on assignments: “This means that, if necessary, we can go back to the client with revised costs in a transparent way.”

Break it down

“We charge fees based on the nature, extent and timing of the work we spend on each engagement and also depending on the skill sets required for the engagements,” says Magdalene Ang FCCA, director of Singapore-based R Chan & Associates.

Speaking in a personal capacity, she says that many SMPs work on a fixed-fees basis and also do not charge for ad hoc services, but that her firm has a different approach. “We will explain to our client that we impose fees for certain services that the client requests us to do, and we explain the reason through our time charges,” she says, adding that she believes this is a sustainable approach.

“We will always explain to our client that the fees we charge are based on the estimated time we will spend on the engagement, and in certain cases we break down our hours spent on the engagement by level of professional staff to enable the clients to understand the rationale of our fee.”

Author: Philip Smith, journalist

Source: ACCA AB (Accounting and Business) magazine