University of Mississippi eGrove American Institute of Certified Public Guides, Handbooks and Manuals Accountants (AICPA) Historical Collection 2003 Bill what you're worth David W. Cottle Follow this and additional works at: https://egrove.olemiss.edu/aicpa_guides Part of the Accounting Commons, and the Taxation Commons BILL what you're WORTH BILL what you're David W. WORTH Cottle, CPA, CMC David W. Cottle, CPA, CMC Issued by the Management of an Accounting Practice Committee Notice to Readers Bill What You’re Worth does not represent an official position of the American Institute of Certified Public Accountants, and it is distributed with the understanding that the author and publisher are not rendering legal, accounting, or other professional services in this publication. If legal advice or other expert assistance is required, the services of a competent professional should be sought. BILL what you're WORTH David W. Cottle, CPA, CMC Issued by the Management of an Accounting Practice Committee Copyright © 2003 by David W. Cottle. Published by American Institute of Certified Public Accountants, Inc. New York, NY 10036-8775 All rights reserved. For information about the procedure for requesting permission to copy any part of this work, please call the AICPA Copyright Permissions Hotline at (201) 938-3245. A Permissions Request Form for e-mailing requests is available at www.aicpa.org by clicking on the copyright notice on any page. Otherwise, requests should be written and mailed to the Permissions Department, AICPA, Harborside Financial Center, 201 Plaza Three, Jersey City, NJ 07311-3881. 1234567890 PP 09876543 ISBN 0-87051-474-1 Preface Pricing your services and billing for them is one of the most important skills in the suc­ cessful practice of accountancy. However, formal university education almost never covers it; employee training seldom includes it; and even owners of the same firm rarely discuss pricing in an organized manner. Apparently you should be born knowing how to set prices, negotiate prices, and submit invoices—or else learn by osmosis. However, pricing and invoicing are like accounting or riding a bicycle: They are skills that one must learn. As a result, the skill levels manifested by owners, even in the same firm, often vary widely. Two owners in the same office with approximately the same experience, who handle the same types of clients, and do similar work often yield strikingly different results in invoicing clients. The income you enjoy today and the kind of lifestyle you have when you retire depend on how well you manage your firm. This book will help you in this crucial man­ agement area. But, remember all CPAs must comply with both the AICPA Code and local state accountancy board regulations regarding fee arrangements. The AICPA rules may be found at http://www.aicpa.org/about/code/ed302.htm and http://www.aicpa.org/about/code/ed503.htm. Links for state jurisdictions may be found at http://www.aicpa.org/states/info/index/htm. ■ ■■ Benefits of This Book Follow the advice in this book and you can: ■ Raise your standard chargeout rates if needed. ■ Charge more for those engagements that justify a higher price. ■ Learn the tools to implement specific value pricing ideas. ■ Upgrade the profitability of serving marginal clients. ■ Avoid price disputes and, if they occur, handle misunderstandings in a mutu­ ally agreeable and profitable manner. How to Make This Book an Investment, Not an Expense Don’t wait to finish reading the book to implement your ideas. Act immediately on the most relevant ideas you get. The sooner you act, the better you internalize new ideas and remember them. iii Bill What You’re Worth Read other books, listen to audio cassettes, and watch videos on pricing and invoicing. You’ll find a list of some of my favorites in the “Bibliography of Recommended Reading, Listening, and Viewing.” Expect results. Approach this book with a positive attitude. If you go to a department store, not everything in the store will interest you, but something in that store will interest you. Most books are the same way. This book is like a tool kit. Every job you undertake around your home does not require every tool in your kit. Sometimes you need only the needle-nosed pliers and a screwdriver. But it’s nice to have that set of metric wrenches or star-head screwdrivers when the specific job that needs them comes along. In this book you will find most of the pricing, invoicing, and negotiating tools you need to run a practice. No book could cover them all because the subject is too large. To get the most from this book, take my ideas and tailor them to your situation. Keep a pen handy as you read. If something you read sparks an idea, write it down right then, before you forget it. Use the margin of the page if you have to. Ask yourself, How does this apply to my practice, my clients, and my situation? How can I make a few changes to this idea and make it work for us? Follow this advice and you will invest your time and not just spend it. Somewhere in this book, you will find a few really valuable ideas that will enhance your practice. Take lots of notes in the margins. Keep writing. The more notes you take, the more value your book has for you in the future. People who take notes retain more of what they read. I hope you get a lot out of your investment in this book. iv Acknowledgments I have had very few original ideas in my life—maybe a couple of dozen. So naturally that means a lot of concepts in this book originated with someone else. I’ve done a lot of research for this book. I have studied the pricing of accounting, con­ sulting, and advisory services since I first hung out my shingle in 1967. Although I am a pretty good biller now, I still learn new things all the time. This book represents the truth as I see it today, not the Truth with a capital T. Believe nothing, no mutter where you rend it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense.—Buddha It’s okay for you to be skeptical as you read this book. All I ask is that you test these con­ cepts in your practice. Lots of my ideas come from my clients. I have been privileged to work with about 25 of the 100 largest CPA firms in the United States, and about 15 of the largest 50 in the United Kingdom. Every big firm is a small firm that got it right. And I’ve worked with some extremely profitable small firms with less than ten total personnel, and learned from these boutique firms also. Some of the concepts in this book were inspired by: ■ Value-Based Selling: The Art of Building High-Trust Client Relationships for Financial Advisors, Insurance Agents, and Investment Reps, written by Bill Bachrach, and published by Aim High Publishing, San Diego in 1996 ■ The 2001 Professionals Guide to Value Pricing, written by Ronald J. Baker, published by Aspen Law & Business in 2001, especially the material in Chapter 1, “Pricing Methods in the CPA Profession,” on pricing and risk and cost-driven rates versus target-driven rates and Chapter 10, “Get It In Writing,” on fixed-price agreements ■ Innovative Billing and Collection Methods That Work, written by Charles B. Larson and Joseph W. Larson, published by Irwin Professional Publishing in 1995, especially the material in Chapter 4, “How to Set Prices,” on charac­ teristics of engagements that deserve above standard pricing and in Chapter 7, “Seven Causes of Unplanned Write-downs and How to Avoid Them,” on taking the time to plan ■ Breaking the Paradigm: New Approaches to Pricing Accounting Services, writ­ ten by August J. Aquila, Ph.D., published by the American Institute of Certified Public Accountants in 1995 v Bill What You’re Worth ■ Million Dollar Consulting: The Professionals Guide to Growing a Practice, written by Alan Weiss, published by McGraw-Hill in 2002, especially the demand and supply myth in Chapter 3, “The Pricing Myths” ■ Paul Dunn of The Accountants Book Camp, especially the material in Chapter 1, “Pricing Methods in the CPA Profession,” on pricing and risk; Chapter 4, “How to Set Prices,” on packaging services; Chapter 5, “How to Discuss Prices with Clients,” on the “Preferred client” approach; Chapter 10, “Get It In Writing,” on fixed-priced agreements ■ Dougherty, Littlewood & Hamilton, one of my clients, for material in Chapter 10, “Get It In Writing,” on fixed-price agreements Parts of this book were previously covered in earlier books of my own, namely, Managing for Profitability: How Winning Professionals Earn What They’re Worth (David Cottle Consulting, 1993); Managing by the Numbers—Monitoring Tour Firm’s Profitability (AICPA, 1993); and Target Marketing: How to Gain Profitable New Business (Aspen Publishers, 2000). I am especially indebted to L. Ron Hubbard, the twentieth-century American writer and philosopher, from whose works I have learned a great deal about human nature and motivations. vi Acknowledgments The following are members of the Management of an Accounting Practice Committee Task Force who provided direction for and reviews of this book. August J. Aquila, Ph.D. Consultant and Author Minnetonka, Minnesota David J. Sibits, CPA Hausser + Taylor, LLP Cleveland, Ohio John B. Welch, CPA Doshier, Pickens & Francis, P.C. Amarillo, Texas AICPA Staff: Acquisitions: Laura Inge Editor: Mary Mooney Design: AICPA Creative Directions Production: Steve Geske vii Table of Contents Introduction ...................................................................................................................