Fee Settings for Professionals

Fee Settings for Professionals gives accounting firms a practical framework for helping professional-service clients establish charge-out rates that are supported by the financial requirements of their own practice.

The package includes 15 professional-practice and financial-management resources centred around the Fee Setting for Professionals advisory paper and the Professional Service Firms Charge Out Rate Calculator. Supporting material extends the engagement into budgeting, cashflow forecasting, management reporting, cost control, competitor analysis, marketing and the development of broader business advisory services.

Move Beyond “What Is Everyone Else Charging?”

Professional practices can easily fall into the habit of setting fees by looking at competitors, increasing last year’s rates or estimating what they believe the market will accept.

The Fee Settings for Professionals resources provide a stronger basis for that discussion by helping the client consider the financial characteristics of their own practice, including:

• Team salaries and employment costs
• Available and chargeable working time
• Individual and team productivity
• Business overheads
• Targeted profitability
• The effect of write-ups and write-downs
• The different economics of individual team classifications

This allows your firm to help clients establish fees around the performance their own business needs rather than relying solely on external market comparisons.

Fee Setting for Professionals Advisory Paper

The detailed Fee Setting for Professionals paper provides the commercial background to the fee-setting process.

It explores issues including:

• The challenges involved in setting professional fees
• The relationship between fees and profitability
• Team productivity and chargeable time
• Practice overheads
• Service differentiation
• Competitor positioning
• Targeted profitability
• Monitoring performance after fees have been established

This provides partners and team members with a useful framework for conducting a broader profitability discussion with professional-practice clients.

Professional Service Firms Charge Out Rate Calculator

The Professional Service Firms Charge Out Rate Calculator is the central working tool within the package.

It brings together the major financial and operational factors affecting professional charge-out rates and helps the adviser calculate appropriate rates for different categories of personnel within the client’s practice.

The model considers areas such as:

• Team remuneration
• Employment on-costs
• Working and chargeable hours
• Productivity expectations
• Practice overheads
• Profit objectives
• Fee recovery adjustments

The result gives the client a much clearer connection between the people employed by the practice, the work they perform and the level of fee income required to support the business.

Recognise the True Cost of Professional Labour

A team member’s salary is only one component of the cost of employing that person.

The resources help the adviser consider the wider employment costs and non-chargeable time that need to be recognised when evaluating the economics of professional labour.

This can include relevant leave, superannuation, workers compensation, professional development and other employment costs applicable to the individual client.

Current statutory and employment requirements should be used when applying the calculator to a live practice.

Allow for Different Team Roles

Partners, managers, senior professionals, intermediate team members and junior personnel can have very different cost structures, responsibilities and levels of chargeable productivity.

The calculator allows the client to reflect these differences instead of applying one generic cost or productivity assumption across the entire practice.

Turn Productivity into a Financial Discussion

Professional practices pay team members for more time than can normally be charged directly to clients.

Partners and employees may also spend time on:

• Practice management
• Team supervision
• Training and professional development
• Business development
• Marketing
• Administration

The package helps your firm discuss realistic productivity and chargeable-time expectations for different personnel categories and how those expectations affect practice profitability.

Recover the Wider Cost of Operating the Practice

Professional fees also need to contribute towards the overhead expenses required to operate the practice.

The fee-setting framework incorporates these wider costs into the profitability discussion rather than considering professional salaries in isolation.

This gives clients a clearer understanding of why an apparently healthy hourly margin can still produce an unsatisfactory overall business result if practice overheads are not being adequately recovered.

Build the Client’s Profit Objective into Fee Setting

The resources encourage the professional-practice client to establish the financial return they want the business to produce.

This helps management consider fee levels within the context of:

• The resources invested in the practice
• The financial return expected by the owners
• The cost of operating the business
• The capacity and productivity of the team

Fee setting therefore becomes part of a broader profitability strategy rather than simply an annual pricing exercise.

Allow for Write-Ups and Write-Downs

Professional practices do not always recover exactly the value represented by recorded chargeable time.

The calculator allows expected fee write-ups and write-downs to be considered when evaluating the revenue the practice needs to generate.

This can help management identify whether poor recovery is undermining the profitability assumptions behind the practice’s standard charge-out rates.

Check Whether the Proposed Fee Structure Supports the Target

The calculator includes checking schedules that allow the adviser to assess whether the proposed rates, productivity and chargeable-time assumptions are consistent with the client’s overall revenue and profitability objectives.

This gives the accountant and client an opportunity to review the proposed fee structure before it is adopted across the practice.

Budgets and Cashflow Forecasts

The package includes a substantial group of resources for extending the fee-setting discussion into forward financial planning.

These include:

• Budgets and Cashflow Forecasts guidance
• Sales Profit Budget
• Budget and forecasting forms
• Cashflow Forecast
• Projected Balance Sheet
• Projected Source and Application of Funds

These resources allow the adviser to place the proposed fee structure within the wider financial plan for the professional practice.

Connect Fee Income with the Annual Financial Plan

The budgeting resources help management consider whether expected client work, team capacity and fee levels are capable of producing the required annual financial result.

This moves the discussion beyond the hourly rate itself and into the overall relationship between:

• Revenue
• Team capacity
• Operating expenditure
• Cashflow
• Profitability
• The future financial position of the practice

Cashflow Forecasting

A profitable professional practice can still experience cashflow pressure.

The dedicated forecasting resources help your firm extend the engagement into the timing of receipts and payments and the cash requirements of the business throughout the year.

Projected Financial Position

Projected Balance Sheet and Source and Application of Funds resources provide further tools for considering how the practice’s operating assumptions may affect its broader financial position.

This gives the fee-setting engagement a stronger connection with forward-looking financial management.

Management Departmentalised Accounts

The package includes material for professional practices that want to understand the performance of different departments, divisions or service areas.

Supporting resources include:

• Management Departmentalised Accounts guidance
• Intra-Business Transfer Docket
• Business Unit Trading & Profit & Loss Account

This can help larger or more diversified professional practices determine whether individual service areas are producing the financial contribution expected of them.

Monitor Performance After Fees Are Established

Fee setting is most valuable when the assumptions behind the calculation are monitored throughout the year.

Your firm can help the client review areas such as:

• Team productivity
• Chargeable hours
• Salary and employment costs
• Practice overheads
• Fee recovery
• Revenue performance
• Overall profitability

If actual results move materially away from the original assumptions, the practice can investigate the reason and consider whether operating targets or future fee rates need to be reviewed.

Cost Control

The included Cost Control – An Overview resource supports the overhead side of the profitability discussion.

It provides additional material for helping clients understand and monitor the costs that ultimately need to be recovered through the services delivered by the practice.

Competitor Analysis

The package includes a dedicated Competitors resource for examining the practice’s position within its market.

This can help the client consider factors such as:

• Competitor services
• Market positioning
• Reputation
• Technical capability
• Specialisation
• Service delivery
• Pricing

The objective is not simply to copy competitor fees, but to understand how the professional practice compares with alternative providers and where it can differentiate its offering.

Differentiate the Professional Practice

Price is only one factor clients consider when selecting a professional adviser.

The supporting material encourages professional practices to consider the value they provide through areas such as:

• Technical capability
• Industry knowledge
• Reliability
• Communication
• Accessibility
• Specialist expertise
• Client service
• Broader advisory capability

A stronger and more clearly communicated service proposition can help support the fee structure required by the economics of the practice.

Marketing – An Overview

The included Marketing – An Overview resource helps connect the financial fee-setting model with the way the practice communicates its value to prospective and existing clients.

This supports a wider conversation around positioning, client needs and how professional services are presented to the marketplace.

Development of a Business Advisory Service Enterprise

The package also includes Development of a Business Advisory Service Enterprise, providing material specifically relevant to accounting firms developing broader advisory services.

This helps your firm consider how a Fee Settings for Professionals engagement can be packaged as a defined client service and how the issues uncovered during the review may lead into further advisory work.

From Fee Setting to Ongoing Financial Management

A Fee Settings for Professionals engagement can establish useful targets and assumptions around:

• Team capacity
• Productivity
• Chargeable work
• Operating costs
• Fee income
• Profitability

Your firm can then use periodic management accounts and financial reviews to compare actual performance with those expectations.

A Repeatable Professional-Practice Profitability Service

Together, the Fee Settings for Professionals resources allow your firm to turn the question “What should we charge?” into a broader professional-practice profitability engagement.

Your firm can help the client establish financially supportable fees, understand the operating assumptions behind those fees and then monitor whether the practice is achieving the expected financial result.

This creates a natural pathway into budgets and cashflow forecasts, management reporting, cost control, performance analysis, marketing and broader business advisory services.