Monthly Billing

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#1
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I've heard of (and I've read in that popular "get paid what you are worth" book) that some firms charge a flat monthly fee for tax preparation and planning for income tax services only (no payroll, no books, no entity returns, etc).

For a monthly rate they include the income tax returns, estimated tax and withholding planning, a "checkup" to help them with their P&Ls etc, amended returns and "audit coverage" (IRS letter response, representation, etc.)

Here's an example if you scroll down the page a bit.

https://wcginc.com/fee-structure/

This interests me because I learned from my mentor do this for s corporation clients needing payroll and it has worked out very well for me. Clients love it because they know their costs and resent hourly fees. They way I've systemized these has resulted in a high hourly rate.

But I only get so many s corporation clients. I've never done it with sole props or non-business taxpayers.

Does anyone have any experience with this style of billing for income taxes for clients that are not needing any kind of writeup or payroll?
 

#2
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I do not see monthly billing as an option unless you are actually doing something for a client either every month or every quarter. If you were doing bookkeeping it might make sense.

Maybe we are different than most firms, but we set a client’s estimates for the next year when we finish the current year tax return. We are not reviewing somebody’s Schedule C income every quarter and adjusting estimates. 99% of our clients will pay the same quarteries throughout the year.

So why would a 1040 client want to cut a check each month.
 

#3
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I do think for business clients, multiple bills per year would generate more revenue than one solitaire bill. We do a lot of fiscal year S corps. So I liken to send out a bill right after the the S Corp tax return is done, Say mid Feb for an 11/30 year end. Then send a second bill after the Form 8752 is done. And on that bill I would include the personal return under the heading of Ancilllary Tax services for shareholders.

Other accountants in our firm do not want to be bothered and just send one bill after tax season. I know they are leaving $$$ on the table because I am convinced you can get more with 2 bills than one. But they do not like the billing aspect of the job
 

#4
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BerkshireCPA wrote:Other accountants in our firm do not want to be bothered and just send one bill after tax season. I know they are leaving $$$ on the table because I am convinced you can get more with 2 bills than one. But they do not like the billing aspect of the job


As was explained to me once...Sending bills to our clients is the only revenue generating activity we perform.
Preparing bills is not my favorite activity, but it's not something I avoid by any stretch.

I've done the monthly billing approach with a handful of clients with mediocre success. As you note, the clients really appreciate that predictability that comes along with this kind of arrangement. I've looked at it as simplifying the "preparing a bill" process because they can all be set to automatically generate with the agreed upon amount.

The "catch" is to clearly define scope and be comfortable AND PROMPT in discussing items that fall outside that scope. I've become more comfortable with this dynamic, but haven't employed it with more than a handful of folks that ask for it.
I agree with Berkshire that more frequent bills generate more revenue than less frequent.
~Captcook
 

#5
jesella  
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We work almost entirely on a flat monthly fee subscription basis, even for non-business clients. They like that they don't have a large bill for tax prep in the spring; the flat monthly fee is easier to budget around. In addition to the tax return and mid-year withholding checkup, we work with them to put together their net worth statement and talk about their financial goals. We're very clear that we' don't provide investment advice, but we can certainly provide value in having conversations about where they're trying to go. A large segment of our client base don't have financial advisors at all, so they aren't being asked/reminded things like: Do you have a will? Life insurance? Are your beneficiaries up to date? Have you checked your annual social security statement? Have you checked for Unclaimed Property? etc. We're available to talk about debt reduction strategies and budgeting... things that are fairly common sense to those of us that deal with numbers all day but can be overwhelming to clients. Some clients are working on goals that have them checking in with us monthly or quarterly... others I only hear from at tax time... but they all know that they can reach out with questions any time. I'd rather know what's going on with them and be able to guide in advance than have a surprise tax bill to talk about in March. One unexpected side effect of monthly billing has been the spike in questions on our billing days. Clients receive their payment confirmation and think, "That's right, I wanted to talk about selling my rental..." or whatever.

We like that the recurring transactions just run. No collections issues, no billing drama. We have stability in revenue year-round, and we know exactly what tax returns we'll be preparing heading into the season (plus any new clients signing, of course). As we're providing year-round value, our monthly fee is nearly double what we were charging for tax prep alone, which has allowed us to bring in the same dollars with fewer clients and spread the work throughout the year.

We followed SmartPath to figure out what we wanted to provide and how to price it. https://smartpath.co/
 

#6
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Do you mind telling us what your average 1040 fee is? I just can not see a client who has a $600 1040 tax return receiving a bill for $50 per month and not becoming annoyed.

And you would think that the client that needs to budget for a tax prep bill would be the lower end clients.

Maybe all of your clients are high end and you are sort of a boutique firm where everyone's annual fee is $1,200 + ?
 

#7
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I do not do this for clients that only request work once per year, but I am not opposed to the idea, especially if it can help clients become more engaged and willing to ask questions if they know they have X amount of time each month or year for me to address questions/concerns without incurring additional fees.

BUT, and this is BIG, is this can only be successful, IMO, if they all sign engagement letters specifying exactly what is included for the annual fee billed out monthly, AND they provide electronic payment authorizations. Anything above and beyond the scope of services included for that fee, which must be very clearly itemized, then represents additional billable time at current hourly rate or an agreed-upon fee.
 

#8
jesella  
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It's all in the framing of the relationship and managing expectations. They know they're signing up for this ongoing advisory relationship rather than a one-time service. Our average 1040 was probably around $550 before the transition. Our minimum now is $89/month. (We did retain 20-30 clients at a lower legacy rate, but everyone signing over the last year+ is at the $89 rate). I wouldn't say our client base is low end or particularly high end. We do work with a number of tech workers and engineers (thanks Amazon, Microsoft, and Boeing), but the clients that choose to work with us represent a pretty wide range of income and situation.
 

#9
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I agree this could be beneficial for both sides. Nearly all of my clients are 6-7 figure earners (some former were 8 figures, but adios--pricks to work with, overall), so definitely not low end. But, many of them are still hesitant to reach out with basic questions if they think they'll have to pay because, in their minds, it is not worth the cost. Others freely inquire and pay.
 

#10
ATSMAN  
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BerkshireCPA wrote:Do you mind telling us what your average 1040 fee is? I just can not see a client who has a $600 1040 tax return receiving a bill for $50 per month and not becoming annoyed.

And you would think that the client that needs to budget for a tax prep bill would be the lower end clients.

Maybe all of your clients are high end and you are sort of a boutique firm where everyone's annual fee is $1,200 + ?


You are correct. I have a few clients that came from accountants that used to bill them monthly/quarterly a flat fee to pay for answering questions etc. and then there was an annual up charge at tax filing. They did not like getting a bill ahead of tax filing season.
 

#11
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With automated billing authorization, it's less billing work IMO, and I'm not resentful of my monthly NFLX bill - even though I seldom watch it.

Scope can be handled with an evolving agreement. Ours is already refined from s corp clients that pay monthly for semi-unlimited services.

I'm considering doing sole props with no employees that have no need to be an s corp.

I quoted one today $900/year (or $75/mo) to include a bundle of services, planning, rep., support, etc. (no books, sales tax, payment plans, 433 forms, work for issues where I wasn't the preparer, and about 10 other things - it's very clear). I offered yearly or monthly billing, client's preference.

What I worry about is retention. I've had clients come in that were running from monthly billing firms. But are these the same clients that will also resent a bill for support or a Q4 ES Voucher?

The heck with those clients already.

It's my own fault, but I bet I've given away over a half-million dollars of free work over the course of things. Maybe more.

Gotta tighten this up one way or another.

Easy to resolve with new clients regardless of how you choose to do it, VERY hard to fix for current clients.
 

#12
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We are moving to mostly monthly flat fee billing for our business clients. But in my opinion, if it's a very small business (individuals too) where you're billing, say, less than $1,000 per year, it's not worth it to bill it every month. Besides, probably you're not doing very much for them except once or twice a year. If it's big enough that you need to work with them 3-4 times per year or more, then probably the fee is big enough to make the monthly billing worth it and make sense to the client. In my opinion.
But I like not needing to worry about whether I should bill for the little extra things that come up, and whether the client will be irritated by the extra charge. And the flat fee makes the billing process a whole lot faster. Just look and see how much time you're spending on the client once a year to make sure the fee amount is still good (plus value pricing considerations).
 

#13
ATSMAN  
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What I worry about is retention. I've had clients come in that were running from monthly billing firms. But are these the same clients that will also resent a bill for support or a Q4 ES Voucher?


I think it really boils down to scope of service and what they expect and how clearly you have communicated that in writing.

This tax season I lost a small Sch C client because he was not happy that I would charge for helping and sometimes preparing the estimated payment and 941 forms.

When I got this client they did not want me to prepare estimated taxes or 941 because his wife took care of that. I was only hired to prepare the Federal and state income tax returns. Well then over time, they or she would call me to help her and I did not charge for a 5 minute phone call. Then it got more involved because she got a busy job and wanted me to do most of it and then the trouble started. 2020 was the straw that broke the camels back because of the added complexities of preparing 941.
 


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