Disengaging and GIVING a reason

All of my disengagements with problem clients get a generic, "due to a review of our firm's objectives, it has been identified that [you are fired]".

If they email or call, I don't answer questions.

This has been discussed.

But I'm looking to "narrow", and I have many "decent" 1040 clients that no longer fit.

With every $6000 per year client, for example, I will be dropping 20 $300 "retail" 1040 clients (my goal is to be like 50/50 instead of 90/10). Of course, the lowest yielding clients go first.

But many of them are friends of friends, etc.

They will also still likely see me on local media outlets talking about taxes (the local news interviews me here and there, YouTube, etc).

I don't want to fire them with no reason.

Does anyone see anything wrong (or a risk) with telling these clients the truth?

"I wanted to let you know in advance that I'm moving on to other aspects of tax preparation, such as corporation tax compliance, and I am winding down on services that fit the scope of your tax preparation needs. So unfortunately, I will not be able to prepare your taxes next year. Thank you for being a client for all of these years and I wish you the best".

I see nothing wrong with it but I'm willing to bet that friends and friends of friends will have the deer with the headlights in their eyes respond 'but I didn't think you meant me'.

A lot of CPA shops in my area have been doing just that. Getting rid of the run of the mill 1040 clients. I saw a few of their disengagement letters and all of them say hat they have changed their business model to cater to corporate and business clients and that is the reason for disengagement. Nothing about fees etc. Keep it short and simple.

I did get a few of those 1040 clients and they were paying way way too much for a straight 1040 that did not require Sch A. One was $450!

I think people are keenly aware of the number of changes in tax laws occurring this past year. I'd tell them the complexity of these changes has required that you more narrowly focus your practice and you've decided that going forward you will only be working with business clients.

Clients will understand.

If you disengage due a transition of my business focus I think it's fine to give a reason (it's not you, it's me). The reason to not give a reason is when there have been issues with the client because of the potential for liability.

80/20 principle. Everyone wants to aim for the top 20%.

I did get a few of those 1040 clients and they were paying way way too much for a straight 1040 that did not require Sch A. One was $450!

That sounds like a decent opportunity for you. I just hope you didn't charge your normal rate.

A lot of CPA shops in my area have been doing just that. Getting rid of the run of the mill 1040 clients. I saw a few of their disengagement letters and all of them say hat they have changed their business model to cater to corporate and business clients and that is the reason for disengagement. Nothing about fees etc. Keep it short and simple.

I did get a few of those 1040 clients and they were paying way way too much for a straight 1040 that did not require Sch A. One was $450!

So our minimum fee for existing clients is $500, $600 for new. If they want to leave, that's OK. My rent is $2,000 a month.

I have seen people come in from HR Block with a basic return and the price is $350-$400.

As sole practitioners, we sometimes lose touch on pricing. $450 is not expensive anymore. Especially if you are a CPA.

I've always been surprised when a new client shows me their prior-year HRB returns including the fee charged. I think it's to our advantage to share minimum-pricing amounts. Granted, certain parts of the country will naturally be higher (NYC, Boston, San Francisco, etc...) but it's easy to lose sight of what the going rates are for individual returns.

Not every run of the mill 1040 requires a CPA to prepare it. If you can get CPA rates for them more power to you. I have seen CPA invoices at $200/hr. in my area.

If you look at the HRB pricing it is all those "extras" like peace of mind guarantee etc. that add to the outrageous charge.

I agree that certain parts of the country like NY, Boston San Fran may be much higher than the mid west or deep south. I do not like to do any NY or CA tax returns and if I have to do it for some reason, they are paying extra for that.

At the end of the day if you want to stay in business your pricing will be what your market can bear

Not every run of the mill 1040 requires a CPA to prepare it. If you can get CPA rates for them more power to you. I have seen CPA invoices at $200/hr. in my area.

If you look at the HRB pricing it is all those "extras" like peace of mind guarantee etc. that add to the outrageous charge.

I agree that certain parts of the country like NY, Boston San Fran may be much higher than the mid west or deep south. I do not like to do any NY or CA tax returns and if I have to do it for some reason, they are paying extra for that.

At the end of the day if you want to stay in business your pricing will be what your market can bear

H&R Block pricing is not outrageous in my opinion (I was a regional manager there). They are a public company and we can all see their income statement. They are charging what they need to charge to stay in business and they are not making a killing. They face high retail rent costs because they mostly rent retail space and not office space and they don't do much in the off season at most locations. With entry-level preparers, they have an extremely low retention rate. Their prices are simply "what it costs".

Perhaps I'm wrong, and money isn't everything, but I often get the feeling that many preparers are leaving money on the table.

I've done the same in the past.

I fixed by:

1) Raise prices for new clients until I'm sick to my stomach and can't look them in the eye when I quote them. 50% increase minimum. I went higher than that.

2) Raise prices, without notice, for all return clients by 5% each year. I've never had anyone complain or even mention it and it's starting to compound nicely. If someone asks why their $200 return is not $210, just tell them inflation, your rent and software went up, and there have been new regulatory/compliance costs.

3) In the off season, every off season, take 20% of your lowest yielding clients (not always the cheapest - but the lowest per hour) and send them a polite note in advance that your fees have gone up. I did 30%. I didn't do an exact study, but nearly all of them came back. I still do the 5% thing to them. If you don't lose many doing this, do it to 40% of your clients in the following year, etc.

I'm willing to bet that friends and friends of friends will have the deer with the headlights in their eyes respond 'but I didn't think you meant me

Yes, I'm bracing myself for this.