22 Apr 2005
Eileen Reppenhagen, QuickBooks ProAdvisor
Shoe Box Clients are the bread-and-butter of the accounting industry, so if you want to turn them into regular clients, you are going to have to set firm boundaries. If you continue to let clients arrive with shoe boxes, they will. You have to provide them with the tools and systems they need to make the transformation.
How does transformation happen?
Create a client needs analysis so that you can understand their current situation. This is the beginning of any engagement, and is especially important for Shoe Box Clients.
Develop a means of communication that focuses on the Shoe Box Client. Your communication with this type of client is critical to the process of a establishing a successful relationship.
Ensure that you provide a broad sweep of services, from bookkeeping, year end preparation, financial review, and financial planning to any number of services. The Shoe Box Client is seeking a one-stop shopping financial provider.
Recognize that the Shoe Box Client is usually high maintenance when it comes to time and billing. This realization will save you hours in sunk cost, for as we all know, this type of client is always fee sensitive.
Find a way to make them follow procedure – documentation is everything.
Make them blend in with your office.
If you qualify your client with a questionnaire, you can save yourself a lot of grief. Clarify your understanding of what a client is looking for before you start the work, to avoid discovering later on that the service you’re providing is not what they wanted.
Based on the answers to the following questions, you can determine whether they are an ideal client or not. If not, you might want to suggest they look for assistance elsewhere.
- How did you hear about me?
- What made you contact me today?
- What can I assist you with?
- How long have you been in business?
- Tell me a bit about your business now.
- How did you get into this business?
- What are your goals for the next 1-5 years?
- What are your 5 biggest challenges and why?
- What is your relationship like with your previous accountant?
- What worked?
- What did not work?
- What is your year end?
- Where are you in your filing?
- Are you complying with payroll, WCB, GST, PST?
- When are they due and for which period?
- What are you currently paying for accounting fees?
- When are you expecting the work done?
- What do you want from me as an accountant?
- What do you not want from an accountant?
A discussion about what a client owns and what they owe often leads to future engagements for:
- Accounting Services:
- Rental property
- Investments and RRSP’s
- Tax Preparation:
- Trusts and Estates
- Tax plans
- Business plans including financial forecasts or projections
- Personal budgets
Be very clear about what you expect from the Shoe Box Client. Put it in writing that you expect all documentation, their participation and hopefully, a positive attitude. Tell them you will email them as you have questions, that you expect them to review the exception reports for payables and receivables and explain why the money and the paper do not match up perfectly.
Check everything for reasonability. Get the client to talk by asking lots of questions. You need to know their business as well as they do. Often client’s habits are a life long pattern that is very hard to change unless they are presented with a positive means to change.
The hardest part is attitude about the tax rules. What’s deductible, what’s reasonable, what they heard over the back fence is claimable. Explain that any time they ask you about whether or not something is deductible, you can provide them with the reasons in writing directly from the CRA. Use the IT Bulletins to back you up. Print the selection from the IT Bulletin and email or present it to them in writing with the selection copied and pasted into an email.
Have a list of services that you provide in a standard format so that you keep consistency within the framework of your practice. This will enable your Shoe Box Client to understand what services he/she can expect from your firm.
An example of a service list is:
- Reconciliations: Bank, GST, Payroll, Trust accounts, Inventory, Job Cost, etc.
- Year end preparation
- Year end financial statements
- Personal Tax (T1) filings
- Corporate Tax (T2) filings
- Financial planning, etc.
Understanding that Shoe Box Clients are usually high maintenance will help you to determine the type of time and billing appropriate for your practice. This might include, but not be limited to:
- Setting up a retainer upon acceptance of the engagement
- Hourly fees
- Monthly fees
- Reconciliation fees, which are separate from monthly fees
- Year end fees
- Financial management fees
- Financial planning fees
Fees can be a mixture of hourly and flat fees, depending on the situation and on what is appropriate for you. But, never give a quote if you have not done the work before. It will inevitably be two or three times the work you anticipate.
Explain to your new client that until you asses all the documentation, you will not have any idea how long the project will take. Clients will always downplay what needs to be done, so it is important to stress that you expect clients to make an investment in you and you in them and that it takes more time to process the work the first year as there are procedures you must follow in order to get to know them.
You have to have everything. No surprises or holding back given the current audit position of CRA. Why? Because you want to protect your clients from unwanted surprises. They might not know what they do not know. You have to have everything right up to current, not just to the end of the last year for both their business and personal records. Included should be:
- Bank statements with cancelled cheques and deposits attached by month
- Sales documentation, invoices and receipts
- Contracts with customers
- Purchase documentation with business reasons and notation about personal and business portion in alphabetical order by supplier
- Supplier statements
- All credit card account statements
- All RRSP statements
- All broker statements
- Insurance documents
- Insurance documents
- Old tax returns for personal and corporate
- Minute book (don’t keep this, just copy what you need and send the client to the lawyer if it isn’t current to get it updated)
- All government correspondence from Tax, GST, Payroll, PST, WCB, etc.
Here are the steps you should take to ensure you have all of the documentation required:
- Make sure you have a starting point.
- Take old tax returns for both personal and corporate from the prior year and key them into a tax preparation software like ProFile.
- Check that amounts carried forward are utilized or still carried forward. Not all carry forwards are documented by CRA. For example, home office costs, it’s up to you to track these if they are not claimed.
- Sort out each category of documentation and ensure it’s all there.
- The best way to do that is to bring the books right up to date. You can have the client start practicing better habits and you also want to ensure that receivables and payables make sense.
- There are other reasons as well, like the capital gains stop loss rules that require 30 days forward and 30 days back. You need to see the investment statements for the next 30 days minimum for broker statements. You need the next 60-90 days for RRSP’s to ensure that you have captured all of the RRSP contribution slips for the stub period in the current year.
- Enter sales documentation from the original invoices or receipts.
- Discuss proper invoice procedures as most clients in the shoe box category have serious problems with design and implementation. They don’t know how to differentiate between an invoice and a statement of account. Invoices are the last thing they leave with their clients. They are an important document and if they do not have all the necessary components, their professional reputation could suffer.
- Enter bank transactions.
- Match deposits to sales.
- Enter all payments except bank charges to accounts payable or proprietor’s or shareholder’s loans accounts.
- Post purchases and reconcile each vendor as you go. That way when you are finished, you have an exception report of transactions that did not match. You will have payments with no purchase documentation and purchases with no payment record. Either way, the client has to participate in figuring out why and providing additional information.
Give your clients a brand new box with a lid attached and make it a big deal. I recommend bankers boxes - you can purchase them in lots of 5 from Staples, Model Enviro Stor #872. Also include the legal size file folders that cost under $10 for 100. All of this costs you less than $15. I buy boxes and file folders by the case lot and even give them to clients who arrive with ratty boxes. Then I ask them to take their ratty boxes home with them.
If we, as accountants, have to live in an office surrounded by boxes during tax time, at least they should all match and look neat and presentable. Explain how it makes you feel to be surrounded by tatty boxes.
Create the box and label the file folders for them with their participation. Make it an expectation that your office manages only clients who have organized boxes of folders with the appropriate records in each folder.
Here is a list of folders to put in the box for next year:
- To Do: (stuff they can’t deal with)
- Government (folder for each of PST, GST, WCB, Payroll, Personal Tax, Corporate Tax)
- Bank (a folder for each bank and credit card account and line of credit)
- Invoices (in numerical order)
- Purchases: ask them to put their purchases in these folders: A-B, C, D-F, G-K, L-O, P-Q, R, S, T, U-Z (for some reason there are a lot of C’s, R’s, S’s and T’s out there…Canadian Tire, Staples, Shoppers…), and
- Separate folders for each supplier where they purchase over 12 times a year. For example, phone, gas, utilities, major suppliers.
Transformation complete. Your newly acquired client will be happier and so will you.
Eileen Reppenhagen is the originator and contributing author of Section 800 of the CGA Canada Public Practice Manual "Future Oriented Financial Information" (1999), and a participant in CGA Canada's Video: Taking Care of Business (2000). She may be contacted by telephone: 1 604 943.7414