Chapter 3: How to Avoid Lawsuits from Small Business Clients
Part 1: Avoiding Lawsuits by Communicating Clearly with Clients
Communication is arguably the most important skill to have in any business (in fact, there's a whole international organization devoted to it ), and its role in avoiding lawsuits can't be overstated. Relationships, whether personal or professional, require a certain level of communication between parties to be considered healthy and successful. Communication clears misconceptions, illuminates wants and motives, and solves problems that affect both parties.
Recall that 54 percent of small-business owners leave their accountants at some point. The top two reasons they cite for their dissatisfaction? No proactive advice and poor responsiveness — i.e., a lack of communication. If communication breakdowns are extreme enough, a client may do more than leave their accountant — they may sue.
What makes good communication? In the accounting industry, there are three tenants of effective communication: familiarity, cushioning, and tact.
Poor communication is the top reason small-business owners switch accountants.
Tip #1: Get Familiar
Every small business has a different story, and every business owner has different priorities. To foster a good relationship, you need to know what makes your client's business tick. Start by…
- Asking your clients what they hope to get out of the relationship, including what they want for their business and themselves.
- Checking in every once in a while to see how their business is doing.
- Educating them about what to expect and letting them know when things change.
You want to be familiar with your clients' businesses, and they want to be familiar with yours. Remember, familiarity builds bonds. It's why friends hang out and why couples go on dates. The more effort you put into knowing your clients, the more they'll trust you.
And if something does go wrong? It's a lot easier to fix mistakes if you've already earned your client's trust. Also, clients are less inclined to sue someone they consider a friend.
Tip #2: Cushion the Blow
The reality is that not all of your clients are going to be consistently rolling in the dough. Small businesses may be stretched thin at tax time or years down the road when the market changes. To keep the relationship productive and friendly, help guide the client when they need it most.
If they owe a ton of taxes they didn't expect to, look for ways to decrease the burden, such as a payment plan. Offer a solution so the same problems don't keep popping up. Cushion the hard times the best way that you can — it's what your clients look to you for.
Tip #3: Be Tactful
Sometimes, your relationship with a client will require a bit of sensitivity. Small-business owners often pour their blood, sweat, and tears into a business, working long hours and risking lots of money to make it work. Know how to handle a situation when emotions are running high.
Sometimes, you'll have to protect yourself, too. For instance, if you see shady accounting practices, address them immediately to prevent an IRS audit or fraud charge. Assume it was an honest mistake the first time, but consider it a red flag if the client seems unconcerned or wants to continue the illegal practices. This client could end up being a major liability for you.
It's okay to "fire" a client who insists on shady bookkeeping practices.
Next: Part 2: The Role of Documentation in Limiting Lawsuits