If time is money, Baker Spindler Holtz started saving money with the dawn of 2012. An accounting firm, they no longer spend time documenting every minute spent working for their clients.
“As of January 1st, there will not be any rate-times-hours. We will remove all timesheets internally and not record time,” said Ryan Holtz, a managing partner at Baker. “We will be the only firm in West Michigan our size that will have 100 percent fixed pricing, combined with no timesheet culture.”
Baker was originally part of the Adamy & Co. accounting firm, founded in 1979 by Rick Adamy. In 2008, the firm’s valuation practice was spun off and the accounting business remained at 161 Ottawa Ave. NW, taking the Baker Spindler Holtz name in 2009. Baker, which employs a dozen people, provides business consulting, accounting, tax planning and preparation, estate planning and fraud prevention.
Holtz uses the term “value pricing” to describe the new billing philosophy.
“I don’t believe the traditional system — rate times hours — ever allowed us to provide the maximum value to our clients — and, ultimately, to be the advisors that we set out to be,” said Holtz.
“We’re able now to sit down with all of our clients at the start of the year and scope out their services for the entire year — set the parameters up front, assign a price to those services up front — which they haven’t had in the past,” said Holtz. “That way, there’s no ambiguity, no invoice surprises, which the clients are ultimately going to like the most. And we guarantee to meet that price. So if we misquoted up front, then that risk is on us, versus the client. It’s just a much smoother way to operate, both internally and with our client.”
The chair of the Michigan Association of CPAs, John Pridnia, said value pricing actually is becoming more common. Pridnia, a principal at the Rehmann office in Muskegon, said a “lot of this is really driven by the customer and what their expectations are.” Although he said he does not see it as a “huge trend,” he does believe it has been increasing in the accounting industry in Michigan over the last five or 10 years.
Value is the key word: Rather than billing a client for time spent, the idea is to try to determine a fair value for the service and base the invoice on that.
Pridnia gave the example of an accountant who has expertise in a particular type of foreign transaction — the type of knowledge that takes years of experience to acquire. A client who needs that service might be able to get it from the experienced accountant in 10 minutes, whereas an inexperienced accountant might have to spend hours doing research.
“Why should I bill 10 minutes when the value that I’ve provided is really the equivalent of somebody else’s five or 10 hours?” said Pridnia.
That issue came up recently when Pridnia worked on a “fairly significant” sale of a business. The client questioned the invoice, indicating he knew about how much time Pridnia had spent and felt the bill reflected a lot of money for that amount of time. Pridnia replied that he did not bill based on time, but rather on the value of the work done. He explained there was “a totally different level of value provided, and that’s why it was billed that way. He had absolutely no problem once he understood.”
The phone call conundrum is another key issue in hourly billing versus fixed-fee billing. Sometimes clients with a question are hesitant to call their CPA — or their attorney, for that matter — for fear it will add too much cost to their bill. On the other hand, many CPAs don’t want to provide an off-the-cuff answer in an impromptu phone call for a couple of reasons — one being that the advice might have much more value than the five minutes spent on the phone, yet the client expects the cost to reflect only five minutes at the hourly rate.
In a fixed-fee arrangement, the professional and client agree what service will be done over a given period of time, such as taking the occasional impromptu phone call, and the total cost is settled up front.
Fixed fee “feels like a more solid fit,” said Amy Engelsman, CEO of Proos Manufacturing in Grand Rapids. Her company is a client of Baker Spindler Holtz. “It gives me a little more flexibility to make that phone call without worrying if I’m getting charged for this,” she said.
Proos Manufacturing and Baker have a one-year agreement with the same fixed fee payable each month. Baker spelled out what it would do for Proos during that time, and Engelsman went over new projects the company is planning, “so that was built in” to the agreement, she said.
“It’s easy for me to see what my expenses are going to be for the year. I know exactly what services they are providing and I know what it is going to cost,” said Engelsman. “I liked that side of it immediately. When you can have some control and some vision of what your expenses are going to be, that’s always a nice thing.”
Of course, if it works for accountants, it probably would work for attorneys, too.
Plachta describes the third option as the traditional hourly billing but with the client receiving an estimate. “And we will commit to doing our best to stay within that estimate. So if we go over the estimate, normally we will either let you know and we’ll have to talk, or we’ll keep our fee capped at that amount,” he said.
“Quite frankly, the cost could be cheaper on an hourly basis if there isn’t as much time involved,” he said. If that happens, but the fee is fixed in advance, “then the client is not going to get the benefit of the lower amount of time that went into it.
“But I think it’s a great idea. I really applaud the CPA firm for doing that. I think it certainly gives much more control to the client to know what the costs are going to be before going forward with it,” Plachta said.
“I think it’s a growing trend among both CPA firms and law firms,” he added, “and I think it’s probably spurred by the economy.”
Holtz said Baker (and Adamy, before Baker) was billing in six-minute increments, and “it’s very cumbersome. We did it over 30 years.” While he would not say the hourly billing system is broken, he does believe “there’s just a better system.”
He said the negotiation with existing clients on the fee is “pretty short” because “we know what we have charged them in the past. It’s pretty easy to sit down and put the price up front.” Fixed-fee negotiations with new clients do take longer, “and should take longer,” he said.
Holtz said pre-determined fees have been around since the early ’90s, and are “definitely more prevalent west of the Rockies.” However, he noted that it is a radical change for many CPA firms.
“From that standpoint, I don’t know if you will see it become a trend because there’s a lot that goes into this change. You have to change the culture.”
Pridnia said quite a few of his firm’s clients have fixed-fee pricing, but others won’t consider it.
“I have some clients that absolutely request hour-by-hour, minute-by-minute billing, and that’s the way they want it. I think it’s just more comfortable for them” to know exactly how much time the firm spent “and how much we’re charging them.”
Pridnia was at an out-of-state meeting of CPAs from the Midwest when one of them said his firm was going to stop using timesheets. “And all of us — our jaws just dropped. We said, ‘How can you do that? We’re so ingrained to that philosophy.’ But they thought it was going to alleviate a lot of the issues they have with reporting time and billing and everything that goes along with it.
“It will be interesting to see what happens on that one,” he added.