Tax Update Blog: Permalink

Hi Joe, I went to flat fee billing long ago. It makes sense for a lot of reasons but here are the ones I find most compelling:

1. Hourly billing rewards inefficiency thereby creating a built in conflict of interests between the accountant and his or her client. This is because the client almost always wants to get the matter resolved quicker rather than later.

It makes sense more that the accountant who spends LESS time (and, therefore, delivered the end product to his client sooner) gets paid more than the accountant who spends MORE time and delivers the end product later.

Hourly billing turns common sense on its head.

2. Uncertainty of Cost makes it difficult for clients to make appropriate cost-benefit analyses before making an expenditure.

Consider this: Would you ever in your wildest dreams hire a car mechanic who told you to drop off the car. I bill $100 an hour. I have no idea how long it will take, but I'll give you a bill when I'm finished?

That would be lunacy.

Accountants should get paid for the value they deliver, not for time they spend trying to deliver it.

Peter, those are excellent points. I think there are a number of services that can fit a flat fee model, particularly recurring tax and audit services. The hard ones are two categories:

1. Open ended projects, like acquisitions; and

2. Basket cases.

When you are working with a buyer or seller of a business, there is enormous variation of time that can be involved. To do a flat fee, you have to make the simple deals pay for the hard ones, and that doesn't seem fair. I like the idea of a percentage, but I don't know if the clients would.

And I don't think basket cases can be flat-feed, except at outrageous levels, just because you have no idea how long they will take. A high hourly rate can be helpful incentive to get the client to get it together in such cases.