You will normally charge your clients for the work you do for them by keeping a record of the time you and any other staff spend on the case and then multiplying the time by the appropriate hourly charge-out rate. The charge-out rate is higher for principals than for technical and support staff. Charge-out rates also vary according to:
- the type of work undertaken
- the size and prestige of the practice
- the location of the practice. Hourly rates in London and the South East are likely to be substantially higher than those charged in a small market town elsewhere in the country
It would be a good idea to find out what hourly rates your immediate competitors are charging. Although you will have to base your own rates on your costs and on the level of income you want to bring in to the practice, you'll also need to remain broadly competitive.
Remember too that more and more clients are using their own software to produce their accounts, do their tax computation and file returns online. This has made it more difficult for accountancy firms to charge high fees for routine compliance work. It makes sense to highlight the added-value services you can offer, helping your clients improve their business performance and plan for the future.
When thinking about the charge-out rate to apply for yourself and your staff remember that only a certain proportion of the hours you work will actually be chargeable hours. This is because you have to spend a significant amount of time on other things such as:
- practice management
- continuing professional development (CPD)
Make sure that you and your productive staff are very disciplined when it comes to keeping time records.
Bear in mind too that it is unlikely that you will recover from clients all of the fees due to you. Sometimes you may feel that an excessive amount of time has been spent on a case that can't realistically be billed - at other times your clients may refuse to pay the amount that you've invoiced. Research has shown that fee recovery rates might typically fall between 80% and 90%.
As an alternative to billing clients an amount based on the time you spend working on their business you might consider charging a fixed fee for certain jobs - for example producing a business plan. Some accountancy practices - including online-only practices - charge a fixed monthly fee that covers a whole range of accounting and tax services.
Don't forget to set out in your engagement letter the basis on which you will charge and your terms and conditions.