David Peters Financial
Accountable: Blog for CFOs - 9/19/2022
Managing Problem Clients
By David Peters, CPA, CFP, CLU, CPCU
I am a big believer in the 80/20 rule – 20 percent of your clients usually cause 80 percent of your problems. While most of your clients are probably great, there are always those few. They are the ones that you never feel fast enough for. They are the ones that you always feel like you are chasing your tail to please. They are the ones that are often the subject of your venting to co-workers, your spouse, and almost anyone else who will listen. They are the source of your stress and the meeting on your agenda that you always dread. It doesn’t matter what industry you are in, you know who I mean. We all have them!
Whenever I bring up problem clients to other practitioners, we always complain about them. However, why do we even have these clients in the first place? How did we get here? Were there warning signs that we missed? Most importantly, how can we fix it? I think if we examine a few things about our profession, it may provide some insight.
1. It is an analytical profession.
It is true that accountants have different personalities and that there are a wide array of jobs within the profession. However, accounting at its heart involves analysis. We value hard data, objective decision making, and numbers. From the time we take our first accounting class in school, we are taught how to read and dissect data. If revenue outweighs expenses, then we should move forward with that deal, partnership, or client. Period. Numbers win.
There is nothing inherently wrong with this. The natural objectivity that accountants tend to bring with them to any job provides value to employers, clients, and society. However, sometimes this analytical mentality causes us to value dollars over common sense. Our analysis tells us to take on a client because they will bring more to the bottom line of our income statement, but we forget to incorporate the additional time they cost us. We don’t account for the additional stress and pressure they bring. Those things are difficult to quantify, so we leave them out of our spreadsheets, project management tools, and present value calculations. In short, we forget to value our own well-being in the analysis. We don’t incorporate ourselves in the equation!
2. It is a service-oriented profession
Whenever I ask my colleagues at conferences or events why they got into the accounting profession, they don’t usually cite a love of tax code or GAAP regulations. (There may be some of you out there. I am just saying that’s not usually the answer I get!) Most people go into accounting because they love using their analytical skills to help solve problems for other people. They are problem solvers that take great pride in conquering the most difficult issues that the business world can throw at them.
Again, this is not a bad thing. Executives, clients, and business partners give us their most difficult problems because they know we can handle it. We have a reputation for coming through. However, this can work against us. We look at problem clients as the newest hill to climb or problem to conquer. We become convinced that even though the last four firms fired them for being difficult, we will be different. We always come through – and this will be no different. So we keep trying and working with them, thinking that eventually it will get better.
In behavioral finance, there is a term called loss aversion. People hate declaring losses in their portfolio, so they hang on to loser investments (those that continually lose value with no realistic possibility to turn around) too long. They keep thinking that even though an investment is tanking now, it will eventually recover. All they need to do is hang on. Meanwhile, the investment continues to return deeper and deeper losses. Whether it is naivety or stubbornness, they make a bad decision because they don’t want to declare something a lost cause. Problem clients are often the same way. We lose more and more time and money. They don’t get better, but we fool ourselves into thinking it will. We keep trying to solve the problem – instead of realizing that it can’t be solved.
3. It is a billable hours-based profession
I have never met an accountant who was not a hard worker. Even in more recent years where more attention has been on mental wellness, we often take a certain pride in the number of hours we put in, the tax returns we do, or the cases we close. Sometimes our pay incentivizes us to be this way, but other times it doesn't. More often, we just like the idea of getting the work done and crossing things off the list. If a job takes a few more hours of our time to get done, we roll up our sleeves and do it. We work until it is done. We get satisfaction from completing the task.
I know I sound like a broken record here – but that’s not a bad thing! It makes us reliable and valued. People know we always come through – no matter what. So when a problem client asks us for just one more thing, we just do it. We don’t tell them no. We simply push through. One more job. One more thing to cross off the list. The engagement’s scope creeps – and we let it.
Don’t get me wrong. I am not saying that all problem clients are our fault. Anyone can find themselves in a bad client relationship and some problems are not readily apparent right away. My only goal in pointing these common personality traits out among those in the profession is to say that we are often more in control of the situation than we may think. However, if we are going to have less problem clients in our lives, we need to change how we think about our clients, ourselves, and the services we do.
Several years ago, I found myself feeling very burned out on the client side of my business. I was feeling taken advantage of, undervalued, and just plain tired. I needed to change my business or get out of it. I was at my breaking point, so I decided to change how I viewed my client relationships. I didn’t change my due diligence process too much. I only changed how I viewed my working life. I list some of the perspective changes I made below.
1. You are not everyone’s solution – so don’t try to be.
Client relationships truly are relationships. Over time, you get to know clients and they get to know you. Naturally, there are some clients that you resonate better with than others. This may be because you have common backgrounds, hobbies, or you are just wired similarly. Whatever the reason, when you gravitate towards someone, you tend to do a better job for them. Meetings and tough conversations are easier, because you understand each other. So look for clients who you click with.
About a year ago, I was asked what qualities were most important when picking out a financial advisor. For me, it all comes down to one word – fit. We need to realize that some clients resonate better with other professionals. We don’t have to be everything to everyone. It is often better for the client and you if you realize this sooner rather than later.
2. Know Where Your Lines Are
Bad client relationships typically don’t develop overnight or due to one incident. It is often repeated behavior that results in a deteriorating relationship. There are usually clues that a relationship is heading in a bad direction, so we need to pay attention to those things.
Let’s say a client has a habit of “creating fires” – they always want things right away and are constantly expecting you to drop everything for them. They do this one time. You stay 4 hours past the time you typically leave, but you meet the request. Next time, 4 hours of additional time becomes 6 hours. The third time, you pull an all-nighter. Pretty soon, they expect it – and you are left in increasingly impossible situations. You can charge them more money for last minute requests. Does that really help though?
I am not saying you should never go the extra mile for a client. I am merely trying to point out that people are habitual. If you have to chase a client around for payment once, chances are good that you will need to do it again. If a client wants you to respond to every email right away, then they will likely expect this behavior in the future. Some of these behaviors you may be okay with. Others you may not.
If you are not okay with something, talk to the client about it. See if you can change it. If you can’t, know where your lines are. If you can’t live with it, fire the client and move on. That’s probably better for both them and you. Know what is a dealbreaker and stick to it – no exceptions. For me, one of my dealbreakers is how my staff is treated. If a client treats one of my staff members consistently poorly, they will receive a disengagement letter. Having lines eliminates many problems before they get out of hand.
3. Don’t be afraid to give up revenue or let a client go
This one is easier said than done. It seems almost against our DNA to give up revenue. However, anytime I have made the decision to let a client go, I have never regretted it. I have never missed the revenue. In fact, normally if you give up a bad relationship, you free up time for more good ones. I have always made more money after letting a client go. I have been able to replace those relationships with clients that fit better with our model or who I just enjoy working with more.
Change is hard though and we tend to prefer the familiar. Prospecting can be tough and there is always a tinge of doubt within us. We think what if this problem client’s business takes off after I let them go? What happens if they are a great referral source and I just messed up my pipeline? What happens if this ends up hurting my business more than helping it? While it is natural to ask these questions, you can’t let fear cause you to make bad choices. If you are good at your job, more clients will come. More business will come. Have some confidence in yourself and your product.
The decision to let a client go should not be taken lightly. However, once it becomes necessary, we cannot shy away from doing it. Problem clients generally remain problems. If they are a problem for you, chances are good they will be a problem for the next firm too.
There are a lot of writers and experts out there who talk about work-life balance, prospecting, and time strategies. I am not any of these things. I am a tax practitioner, financial advisor, and financial officer, who works with clients on a regular basis. These changes worked for me and rejuvenated me at a time when I needed it. If you are looking to have better client relationships, one thing is certain: doing what you always have will likely result in the same outcome.