By John Borrowman, CPC
Borrowman Baker, LLC, BV Staffing + Consulting
Gallatin, TN

Running a successful – and profitable – valuation practice is more than just putting out a high quality product. You have a business to run, with risks that demand your attention.

How you meet those risks can make all the difference. For what it’s worth, you’re not alone when it comes to facing this challenge.

We decided to begin an exploration of the practice management issues that practice leaders experience.  We had no idea that our inquiry would take us in so many directions, or provide ideas for more than a single article.

One of the practitioners who took time to talk with us was Michael J. Mard, CPA/ABV, ASA, with Financial Valuation Group in Tampa.  Mard’s view is that when practitioners sit down to talk, the conversation about practice management issues eventually leads to problems involving fee collection.  He estimates that an uncollectible ratio of 15% to 25% is not uncommon.  “The problem with a professional service firm,” he says, “is that whatever makes a CPA an honest practitioner isn’t necessarily what makes other people what they are.”

Mard admits to having been victimized by the client who decides he’s not going to pay.  “They always promise to pay,” Mard notes.  “And yet, we – being the industry, broadly – end up with the write-offs that we do.”  He estimates that these problem clients comprise less than 5% of the total.  Sometimes, there are large fees involved, however.  And you have to decide whether you’re going to continue to work with that fee at risk.

When asked about the usefulness of a policy that the report doesn’t go out without the check in hand, he describes having “a reasonably firm policy”, but points out that there are real world limitations. In certain situations, simply refusing to issue your opinion based on the payment terms in your contract may lead to being sued for your failure to perform under your own contract. Realistically, such a policy can’t be enforced all the time.  “Sometimes we’re on a financial reporting assignment where the number is needed for the 10K and we’re up against a deadline.  Or, it could be a litigation assignment where the number has to be submitted in Federal Court or the case gets thrown out.”

So, what does Mard do to mitigate his business risk?

He religiously tracks the development of an assignment and monitors each step. His primary tool is a process flowchart, which pushes him to make sure he covers all the bases during an assignment, especially when it comes to billing and collection.

Mard long ago implemented a Monday morning review of project billing status.  “We look at what work we’ve done, what remains to be done, and how much we may have already collected either in the form of a retainer, or follow-up billings.”  In addition to billing roughly 50% up front, he also bills semi-monthly and monitors compliance with a 15-day pay clause in his contracts.

Despite these efforts, Mard sees the collection issue getting worse over time.  He points out that “no one gets an appraisal or a valuation because they want to.  They generally need one because of some sort of problem.  If you’re there and doing the work, to them you’re part of that problem.  You may be helping them fix their problem, but it’s a painful situation all the way around.  And, once it’s done, for them to have to pay more money simply maximizes that pain.” Clients who simply say no leave only bad choices: suing under an arbitration clause, or writing off the debt.

Mitigating Business Risk: Fee Collection
John Borrowman