All the talk in CPA circles recently has been about getting rid of C & D level clients. Many of you have done just that. In most cases, it wasn’t a comfortable task. Now, you have to be careful about taking on new clients.
Remember the old days? Hold a mirror up to the prospect’s mouth. Are they breathing? Okay, they can be a client! Those days are long gone and rightly so. Many firms still allow any one partner to bring in a new client. There are no guidelines or checks to actually prove that the potential client is one that fits the firm’s expectations.
At a minimum, in every case, have a second partner involved and obtain dual approval of taking on the new client.
Here is a good example of specific client acceptance evaluation steps from the Journal of Accountancy:
- Obtaining background information, including an internet search, on the client and key members of client management;
- Making inquiries of the referral source and/or the client’s other professional advisers;
- Understanding why the client left its prior CPA and its history of changing service providers;
- Requesting to speak with the prior CPA. If the prospective client hesitates or declines, it could signal an issue;
- Assessing management’s experience, financial knowledge, credentials, appreciation of internal control, and acceptance of their responsibilities that are applicable to the service to be rendered;
- Understanding any changes in ownership, management, and those charged with governance;
- Performing a credit check to assess the client’s ability or willingness to pay invoices on time;
- Personally meeting with prospective clients;
- Through inquiries, internet searches, and review of public records for pending or past lawsuits, understanding the client’s propensity to sue its professional advisers;
- Reviewing the client’s public records, including financial ratings;
- Reviewing prior financial statements and gaining an understanding of the reasons for any delays in issuance or restatements;
- Reviewing previous tax returns, recent tax return audit results, and other pending tax issues; and
- Taking a gut check. Instinct can play a key role in identifying and assessing client risk.
Be sure to read the JofA article, Client acceptance: A liability gatekeeper.