Client screening is excellent risk management as well as practice management. It’s the first step in an effective loss prevention program, and it can be used to identify less desirable clients that may be keeping your firm from developing the clients you want. Re-evaluate your relationships with clients on a regular basis—at least annually. The following checklist highlights some of the warning signs that it may be time to disengage from certain clients.
1. Difficult Behavior
Does the client pay your firm on time? Provide the documents you need? Return your phone calls? Or is the client non-responsive, causing delays? Difficult behavior should be explored. It may be an indication of a failing business, financial problems, substance abuse or other personal problems. Uncovering the source of the problem might help, but take swift action to remedy the situation or disengage before the situation worsens.
Some clients may pay well but are nasty to your staff, make unreasonable demands, complain excessively, argue, threaten to sue you, or are generally obnoxious, creating turmoil for you and your staff. Is this client worth keeping? Sometimes the answer is “no, life is too short.”
2. Withheld Information
When a client does not provide the information you need, carefully consider the problem. Is the problem sloppy record keeping, or is the client deliberately withholding information? If it looks deliberate, be cautious, especially if you are urged by the client to proceed with work without having proper documentation. Client behavior such as this is a red flag, and repeated delays could be the result of unethical or illegal activity.
3. Changes in Client’s Business
Changes in a client’s business may lead the client in a direction that causes you to reconsider the relationship. A client may, for example, buy a business that requires work you are not qualified to perform. Or a start-up client may grow and decide to go public, and you may not want to perform the public work. Such changes can alter the professional relationship and result in a situation that causes you to disengage.
4. Changes in Your Firm
When your firm changes, you may also need to change your client base. The loss of a partner with expertise that the other partners don’t possess will require a decision by the firm regarding continued service to the former partner’s clients. You may decide that you no longer want to continue performing a particular type of work. Or you may decide to grow your business in new directions. Review your client base whenever your firm changes in order to determine whether or not all existing clients still fit the firm.
5. Potential Conflicts of Interest
Consider all client situations carefully to spot potential conflicts of interest, which may affect your objectivity or independence—even if you are not engaged to do attestation work. Examine potential or actual conflicts of interest from a broad point of view, considering the client’s perspective as well as those of other stakeholders such as owners, investors, partners, beneficiaries and spouses. Troublesome scenarios can include a partnership break-up, a failed investment, bankruptcy, a trust, merger, divorce, or anything else that can create opposing or disappointed factions.
When you decide to disengage, seek to terminate the relationship professionally and formally, in writing. Your disengagement letter should always contain clear statements, a description of your work, and a list of any due dates or filings. Your client need not feel antagonized in any way. Done effectively, disengagement can leave your client feeling that you have acted in the best interest of both parties. Effective communication is a key factor in any CPA-client relationship. When you work to stay informed and in control, you are safeguarding your firm. In the end, disengaging is simply good practice management, and knowing how to do it skillfully and professionally will help you grow your practice and avoid liability.