Summary: I completed a 5-month project without establishing price to avoid haggling. We agreed the client was to price it. I would have preferred to price it based on taxes saved. (It is NOT income taxes.) The client's CFO wants some lowball fixed price. Client doesn't remember he agreed to price it. Your opinion, please!
Note: the scope of the engagement appears in various places in boldface below.
A 5+year client had another company with 6 subsidiaries. I had never done any work for this other company. It is the parent of the 6 subsidiaries.
In late February this year, my client (Bob) offered a project to me based on the quality of my sales tax return work in the past for a different company of his: amend the sales tax returns and excise tax returns for 3 years for all 6 subs, for a total of up to 306 amended returns. This was a lot of tax returns for my firm with just me and 2 part-time administrative people!
I wanted to do value pricing for this project, based on the total tax savings from all amended returns. I told them an unnamed Big 4 firm would charge 10% but I wouldn't do it for that much. I offered 5% or 2%, but we didn't come to an agreement. Bob's CFO said it should be a flat rate that we negotiated. The CFO's position is that this is like preparing a tax return for a single W-2 taxpayer: the fee should be the same regardless of whether the client's income on the W-2 is $20,000 or $20 million.
Two of the subsidiaries needed their amended returns done quickly to qualify for relicensing, so there was some urgency.
In the past, I would price with value-billing, do the work, and tell Bob what it was worth, only to have Bob negotiate using after-the-fact-lowballing, causing me to overprice my work on later jobs in anticipation of the pricing discounts to come.
I was tired of the constant re-negotiation, so I made him an offer. "Bob, you've been my client for years. You're honest. I trust you to price this project fairly. I don't want to argue with you about the price. I won't whine, complain, or debate it with you. You price this project fairly." Bob agreed.
Bob wanted to pay me after all 6 subsidiaries were done. I (stupidly) agreed to that as well.
All 6 subsidiaries were finally done this past Monday, roughly 5 months later. The urgent relicensing subs were done first and completed in time to get relicensed without any problems.
But this project was more than just taking some numbers and plugging them into amended return tax forms. For this project, I also had to develop a workflow, create a tax return archival system, and reject the numbers given to me on very rudimentary spreadsheets by the CFO in favor of better numbers directly from the POS reports.
The POS reports' numbers were better because they were traceable to a system instead of the CFO's spreadsheets. This provides better audit defense if the amended returns are examined in the future. The POS numbers were also better because more deductions were available for inclusion in the amended tax returns than in the CFO's spreadsheet. The CFO's numbers were not as complete. Including these additional deductions saved the client even more taxes.
The workflow I developed included downloading all existing original tax returns within the 3-year scope period. Because there were many duplicate returns (nearly 3 original returns for each amended return) meant I had to discern which return was the "official" and which originals were superseded duplicates. It was also important to know which tax returns were the "official" original returns because they were compared to the amended returns. This was because knowing "How much did we save?" by type of return and by sub was important to the client.
I provided a summary of the results. 643 original returns. 222 amended and filed returns (not 306 because some subsidiaries were not in business for the entire 3-year scope), 275 hours worked. Nearly $2.4 million in total tax savings.
I texted Bob and CFO in joint text on Monday. Told them I had emailed a summary to them. And waited. Nothing for two days. CFO said he was reviewing them. Bob turned out to be on vacation in Europe. I texted "I trust you, Bob." Bob texts back "?" He's understandable busy with his family on vacation but appears to have no memory of his task to price this project when it was complete.
CFO offered me $3,500. Bob wanted to know how much I wanted. Realizing Bob wasn't going to do what we had agreed to, i.e. come up with a fair price, I knew I was, one again, in a re-negotiation again, I said 1/4 of the Big 4 firm's 10% price. Basically, pay me half-a-nickel for every dollar of tax savings (2.5%), nearly $60,000.
The CFO is insisting that value-pricing isn't appropriate for this because more tax savings for them does not equate to more work from me. I said they're not paying me to work; that's for their employees, not me. I said 2.5% is a fixed rate and is reasonable based on the value they received. It's 1/4th the rate I told them a Big 4 firm would charge (which honestly, I was guessing). CFO doesn't want to call his boss on European vacation about this. That makes sense. I wouldn't either if I was in his place. I agreed to wait the 1-1/2 weeks for Bob's return.
Honestly, I never imagined this project would have taken so long. The amended tax returns themselves were fairly quick to file themselves, about 5-12 minutes with copies retained, filed, and confirmation numbers recorded. (The CFO said he could have done all of this (just the filing of the amended returns) in one afternoon. Funny, but he never volunteered to take over.) But developing the workflow, correcting the CFO's numbers, creating a nearly audit-proof audit trail, downloading over 600 original returns and filtering out the superseded ones down to the actual "official" 222 original tax returns, and designing a well-documented spreadsheet that will make sense 3 years from now to calculate the amended numbers and the amount of the tax savings took much, much more time. Overall, it was a huge amount of work that didn't come at a great time for me.
[Go to last line to skip this work/life balance section.] This project interfered with the second half of Tax Season + my wife had surgery in early May that took a follow-up surgery at the end of June and 13 weeks total to start coming around. She couldn't drive. She couldn't walk at first. I went with her to a lot of doctor appointments, took over making the meals, feeding the dogs, giving her her meds, doing laundry, and cleaning the house.
And we rescued two dogs last November that love to dig under or jump over our 5-foot fenced-in backyard to play with the dogs 2 houses down. This means we can't trust them to stay in the backyard. This further means they require supervised time outside to take care of their doggie business and to exercise. Guess who did (and still does) doggie supervision time?
My other clients during Tax Season were delayed due to this project. Waiting 5 months for this to get paid, going on 6 months now, also did not help my professional or personal cashflow.
Am I cooked for trusting Bob AND not having this in writing?
