The Hindu Business Line : Practice management: Evaluating a client

Practice management for chartered accountants (CAs) in an audit practice (practice) is a fairly difficult subject to deal with, as it has different and conflicting pulls and pressures. There are various trade-offs involved and when it comes to taking a decision, with regard to the desirability or otherwise of a client, it is not always easy to take what is obviously the correct decision.

Apart from the usual pressures of not being able to meet the financial budgets that a firm has set up for itself (whether by means of a well-defined budget and business plan or through a hazy and unfocussed set of targets), there are also by the very nature of the profession risks that one has to be alive to.

High risk profile

Add to this melange of variables, the recent phenomenon of employee-attrition and the high levels of salary expectations, we now have a very difficult set of circumstances within which the profession has to function. Further, costs having risen at a pace faster than revenues and due to the dearth of manpower, it is not always possible to get the best of resources required.

The profession has a high risk profile. Often the sins of the clients visit the CAs for no fault of their own except that the CA happened to be at the wrong place at the wrong time. It therefore becomes essential for a CA to evaluate the client list periodically in order to mitigate the risks and to maximise the income. This should be done in a systematic manner. Such an evaluation will enable the CA to pinpoint the areas where he/she needs to concentrate. An illustrative template is provided (see Table), which is self-explanatory. This will also help in the peer-review process.

Three qualitative criteria have been used in the template. The greater the number of the qualitative criteria that is employed, the greater will be the options and choices available, apart from making them better and more narrowly defined. Therefore, one can tailor-make the template based on one’s experience to make it more relevant for personal needs rather than have a generic model.

Defined Values

It is possible that each CA has his/her own answers to the various situations thrown up by the template. While the comments are only examples, each CA can modify according to own perceptions. Therefore, the comments are not to be taken as answers but as suggestions.

What the template does is help one focus on client rating and articulate what has been hitherto unarticulated. It is absolutely imperative that the CA has a list of defined values and categories into which each client is placed and that the CA examines each client periodically and move the client up and down in the category list on the basis of experience. Once a client is placed in “to watch list” or some equivalent category (according to the internal practices), the client should be monitored carefully.

As one’s practice grows larger, one acquires the power to say no and walk away from a deal, if the situation so warrants, which is a sign of maturity. In matters such as this, instinct is a great judge although giving up a client purely because the fees is not adequate may not always be the right decision, since the particular client may refer other clients or may present other opportunities.

Choose with care

However, there is a point at which it may not be worth retaining even such clients since more work at low fee will not help a CA. Pruning down a client list will definitely affect the gross revenues although at the net income level it may not have much impact. This is worth bearing in mind. Being aware of the fact that a new entrant is not always in a position to pick and choose the ‘right’ client, it must be understood that new clients are like investment opportunities and therefore must be chosen with great care.

No doubt there is a great deal of subjectivity in such an evaluation although the subjectivity will, over a period of time, be eliminated, since the CA will have collected sufficient empirical information and the eventual model of risk-mitigation will (or should) become a mirror-image of the CA’s own risk-profile. That will be one aspect and indication of how well the practice is managed.

(The author is a practising chartered accountant.)

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