Do you know why upfront payment is better than pay-as-you-go, both for you and for your clients? Michelle Weinstein’s guest today, Michael King, explains how. Michael is the CEO of KFE Solutions, a top-rated fractional CFO firm based in Dallas, TX. He and Michelle discuss the upfront payment method and how it removes the necessity to chase clients down and provides a more seamless experience overall. If you want to know how to develop a successful upfront payment model for your firm, listen to this episode. Enjoy!
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Why Upfront Payment Trumps Pay-As-You-Go With Michael King
Our special guest is Michael King, who’s the CEO of KFE Solutions, which is the top rated Fractional CFO firm in Dallas, Texas. He’s also the creator of The Connected Accountant, which is the community, coaching, resources for bookkeepers, accountants and fractional CFO service professionals. He spent eleven years in the US Navy supervising nuclear reactors on submarines, then he transitioned into the world of business.
He’s passionate about helping business owners understand their numbers so they can make better decisions. He’s also extremely passionate about cashflow projections, which you’re going to hear. We have a very special topic, why getting paid upfront versus pay as you go is so important and which is the best for CPA firms and that’s what we’re going to talk about.
Before we dive in, I would like to know that if your accounting practice isn’t where you want it to be, I get it. Many of the accounting clients that I work with are frustrated or stuck, especially as it relates to their AR and getting paid upfront, which we’re talking about in this episode. What we’ve found is that they’re typically not even charging enough what they’re worth and you don’t have a solid system in place to attract those high consistent paying clients.
If that’s you, I am offering a complimentary coaching session to dive more into what’s stopping you. If you want to build your firm, feel confident in offering high-level services while getting paid upfront with ease and never having to chase down a client again. I invite you to head on over to TheAbundantCall.com and book the first slot you see with one of my teammates or me.
This is what’s going to transform your life so you can sell higher services, have more free time to spend home with your family and go on that long overdue vacation that you’ve probably been dreaming of the last couple of years. If you’re willing to open up the curtains, get to the truth of what’s holding your accounting firm back from where you want it to be, then head on over to the website. Now, let’s welcome Michael to the show. Welcome to the show, Michael.
Michelle, thank you so much for having me. This is exciting.
I am very excited to have you here because we are talking about a topic that a lot of accounting professionals think I’m crazy when I tell them they can grow a firm to 6 and 7 figures and beyond with no accounts receivable. They’re like, “There’s no way. I can’t fathom not having to chase the client down for an invoice or send out a proposal and hope they pay for it or let alone do some work, send them an invoice six months later, then maybe collect on it a year later.” I’m like, “Yes, all that can change.”
I’m very excited to have you here to talk about this very important topic, why getting paid upfront versus pay as you go or pay a year later is not a good plan. Welcome to the show. If you could share with everyone, I know you have a CFO Fractional firm, you’re in Dallas, you have a community for accountants, CFO services and bookkeepers. Could you share who you are and what you do because I’ve already done it, but now you get to share it in your words?
I’m super excited to be here. I’m the Founder of KFE Solutions. We’re a Fractional CFO firm. We work primarily with professional services, businesses that are $3 million to $35 million in revenue. I also have a community of bookkeepers, accountants and fractional CFOs that I help with things like this. Topics like how do you run a 6 or 7 figure firm with no AR. It’s been a very interesting journey over the years of doing this but I am here to tell you, as living, breathing proof and I’ve been doing this for years, we haven’t had a penny of AR in years now.
I’m super excited to have you here to share your wisdom and your knowledge because this is an important topic. It’s one that I talk about a lot and a lot of accountants think I’m nuts that you can grow a 6 to 7 figure firm and never have to discount your fees to get clients. More importantly, the topic we’re talking about, never to have to send out a proposal and wait for the work or wait for the money to come in, how they can increase their firm revenue and not have to chase clients.
The last time I checked in every accountant I’ve worked with, I asked them, “Do you get paid to be a bill collector? Do you get paid interest on your bad debt? Do you get paid if the money is out one year and you continue to do work for a client and you still haven’t got paid?” They’re like, “No. I don’t get any money for them.” I’m like, “Glad we’re on the same page.”
It’s less about the money and more about the impact you will have. Click To TweetThe journey to get here wasn’t an obvious one. There are some tips, tricks and best practices that I’m super excited to share with our audience to help them in that journey. We’re going to go a little deeper than, “Look at me. Yes, this is possible.” We’re going to get into the weeds and talk about some tactical things that you can do to make this a reality in your firm.
How many tactical things are we going to promise them to make sure they have their yellow notepads out, you got a pen and you’re paying attention?
If you ever hear me talk, you know you’re going to come away with at least three things. Get ready.
Why don’t you share how you got to the point where you have 0 AR, 7-figure firm, you did this all by making sure you got paid upfront, payment in advance and never had to send out an invoice or a proposal or anything unless it was a zero balance one for a paper trail? Share that story that had you shift to where you’re at now.
Before I get into that, I do want to say that I’m super excited and humbled to be here. If somebody that coaches dozens of bookkeepers, accountants and fractional CFOs. Somebody that serves as a fractional CFO and coach for hundreds now of businesses. This time we’re in is an amazing time to be in the game of owning a bookkeeping or an accounting or fractional CFO firm. There are many businesses starting up now and doing amazing things but the truth is, they desperately need the help that you and I, and the audience here can provide. The other reality is the old school model of some of the more traditional brick and mortar accounting firms is not working as well as it used to.
People want to work with progressive, online digital firms. The truth is, they’re willing to pay for it and willing to pay upfront for it. As I think through that, despite all of this, I bet that some of the people reading have had some challenges, as we’ve alluded to, where you’re struggling to justify the hours that you build to a client. They see the invoice and are trying to pick it apart. Sometimes it can feel like clients are price shopping all the time. The worst is when you send an invoice and the client sits on it, it doesn’t do anything with it.
That happens the most because then you have to chase the client down for payment and your receivables grow instead of staying at zero like you. My question for you is what was the story and what’s your receivables get to in your past life to say, “This is why I needed to make a shift.” We’ll go into your three tactical changes that those of you who are here, grab your notebook, pen and pay attention because I preach this all the time, but now we have a special guest who’s also probably going to validate everything I’ve shared. Hopefully, these are going to be some great actionable steps for you to implement. Why wait? There’s no better time than the present and get to zero and stay at zero, so you never have AR again. Share with us, Michael, what happened to you? What was that turning moment for you?
The moment came about years ago. I’ve had the company for years and those struggles we talked about were a monthly occurrence for me. 1, 2, or all 3 of those things were happening all the time. Honestly, I got to the point that I’d had enough. I felt like my clients weren’t valuing my time and my team’s time. They weren’t valuing the expertise that we brought to the table. We were doing a lot of work that we never signed up for. Scope creep crept in. After all of that, now I got to fight you to pay the invoice. Years ago, I came to work one day and there was this entire story over the weekend with a client that was calling and texting me over the weekend at night and the whole 9 yards.
I get to work on Monday morning and what do I have in my inbox? An email from him complaining about the invoice. Asking me, “You billed for 42.5 hours. It seems like 38. That’s what it should have been or something like that.” I reached out to my team and said, “I don’t think any of us are fulfilled by this and waiting to get paid and dealing with all this, I want to fire all of our clients and do a complete reboot. Do you trust me to rebuild the practice from the ground up? If you trust me, I’m going to build it in a way that we don’t deal with this stuff anymore.” It was like, “Yes, let’s do it.” I fired everybody that day. I kept one client. I said, “I’m going to sit down now. I’m going to brainstorm on a dry erase board. How did I get here? How do I get to the point that we never get into this reality again?”
I know everybody’s waiting for the tactics now, but I think it’s important to set that background up. What I found through that whiteboard experience and it took me three days is number one, we needed to move away from hourly invoicing and moved in into a fixed price model, but I didn’t want to move into any fixed price model. I wanted to move into a recurring revenue model that was based on a very defined and clear scope of work. That way, it solves a couple of problems. Number one, you have predictable revenue. You have predictable workloads and our clients know what they’re going to be built and what to expect.
From everything that I talk about, the front-end process that creates the client experience. There’s no surprise. People like me don’t want to get an invoice later on for all these things that I had no idea you were going to charge me for. That’s not that fun. I’d like you to share because I know someone here is thinking, “What if it takes me longer than the estimate that I charge in advance for, then it took me to double the amount of time and I need to send another invoice because I didn’t estimate it properly.” I’d like to have you answer that at some point. What are your best practices for that?
Upfront Payment: The old school model of some of the more traditional brick-and-mortar accounting firms is not working as well as it used to. People want to work with progressive, online digital firms.
Let’s talk about that because that’s a core competency that you need to master for all this work. You’re right, accounting professionals, financial professionals. One of the things that my team and I preach a lot to our clients is cashloads and cashflow forecasting. That becomes hard when there are hourly bills coming in and the clients don’t have a clue what to expect for it. You’re helping them in a number of ways by coming up with that fixed scope and that fixed pricing model. I found that when we moved to that model, it’s a lot easier for us.
It’s a lot easier for us to figure out how to scale because we know what our time commitments are. We know what our scope is and we start to get some efficiencies and things like that internally, which makes the wheel go round a lot smoother for everybody. Honestly, the level of anxiety, stress and drama goes to something like zero when you get to this point, both for you and for the client.
Since we’ve moved to this model, we have a churn rate of almost zero now for years. Clients don’t leave us. It’s such a good experience that they stay with us and never go. I’ll also share it with you. We have clients that pay us now $7,000 a month for our services. They pay us in advance every single month. I don’t say that to sound braggadocious, but I want to share with you. It is possible to get any level of clients paying a fixed price and paying in advance. How do you get there?
Tactical thing number one?
Step one, brainstorm what you want your package to be. This is such an important thing. You’ve got to sit down. I love using a dry erase board, but be deliberate about it and say, “What kind of work is it that fills my team and me? What do we enjoy doing? Is it bookkeeping, tax prep, tax strategy or fractional CFO work?” Think down and think through what you want the scope to be, then go deeper. Let’s say that you’re an accountant and you do bookkeeping. How often are you doing transaction allocations? How often are you doing reconciliations? How often are you delivering financial statements? Are you having monthly calls or quarterly calls?
You need to think through all of the tactical deliverables that you’re going to offer and start thinking through step-by-step how long does this take? That’s where you’re going to solve that problem that you mentioned od, “What if I thought that it was going to take me 20 hours but now it’s 40 hours? Do I send this invoice for the extra time?” The magic in this is in the upfront work. Let me tell you this. When you first get in the game, you’re going to be wrong. It’s part of the tuition that you’re going to pay.
You’re going to be wrong and you’re going to be like, “I forgot that we need to do cashflow forecasting as well. I didn’t include that in my time estimate.” This is what I will tell you, that’s your tuition to eat, not your clients. In my opinion, when you’re going to do a fixed scope of work, if you’re going to come up with a fixed price for that and you underestimate how long it’s going to take, you probably need to eat that because if you told your client, “I’m going to do this for $1,000 a month,” then you come to them several weeks later and say, “I goofed. It’s $1,300 a month,” it’s going to destroy that level of trust and the entire foundation of why these process works gets ripped out from underneath.
Share with us the time where you had to pay your tuition and you screwed up. That first time where you put your package together. You did your first tactical step and you bet with the client. They’re paying you whatever your new package fee is per month, you guessed and you realize that you were completely short.
The reason I use cashflow forecasting as an example is because that’s the thing that got me. We preach the importance to clients of having cashflow forecast and understanding cashflow needs. I grossly miscalculated how long it was going to take. For the first client, how long was it going to take to do this month in and month out because they have a fairly unpredictable cashflow setup. We’re a month into this thing and I had estimated like 2 or 2.5 hours a month. It was a lot more like 5 or 6 hours a month.
I have somebody on my team and Carlos and he’s looking at me like, “What the heck did you sign us up for?” I said, “We’ve got to figure out a way to make up for this somewhere else or how do we get the client to be a little less needy as far as cashloads go.” That came out of my pocket. I had to pay my team for the work that they were doing. I’m not the smartest guy but I don’t make the same mistake twice very often.
What did that mistake cost you? What was your investment in your tuition fund for that mistake?
It’s a lot easier to figure out how to scale when you know what your time commitments are. Click To TweetIt was probably $500 a month or something like that, all in on it. More important than that, it was the impact that it had on my team. We were talking about, I said, “Your time requirement for this client is going to be a lot like this.” They built their day, week, a month around those assumptions and now I’m like, “This is probably going to take 50% to 75% longer than you thought. I need you to go back and reconfigure your life.” They weren’t super happy about that. It was less to me about the money and more about the impact that it had on my team. It’s not at the cost of the client. We made sure that the client had a seamless experience and they got the value that they had paid.
What’s the second tactical step?
Step two is I want you to think out what do you want your effective hourly rate to be? This is where the balance starts to come in. We want to charge our clients a rate that is in congruence with what we think our value is. As you map out all the steps and you figure out the hour and you say, “What do I want my hourly rate to be? I want my hourly rate to be $50 an hour. Do I want it to be $100? Do I want it to be $500?”
There’s no wrong answer here but think it through for you. What do you want your hourly rate to be? What is your time worth to you? I want you to take that and multiply it right by the hours that you think that particular scope of work is going to take. I’m going to give you three different ways to think through pricing these packages. This is the first component of the three on how to price. What does the package need to cost so that you get the bed-effective hourly rate that you’re looking for?
You also have to guess accurately how long you think it will take you on a monthly basis. You were $500 short and put your team in a predicament with your tuition into your mistake schooling. I take these things and teach them. I’m not an accountant. I only work with a lot and I could probably run a firm. No problem. Do the work? That’s a whole different story but I have a lot of smart friends and clients. It’s like, have you ever built a house, a retail space or did any construction. Have you ever done anything like that?
I always say if they tell me it’s going to take three months. I take it times two and know it’s going to take six months. If someone says it’s going to be done in 2 weeks, that means four weeks. I built out a retail store. I had a business called FITzee Foods, meal prep. We ship meals nationwide. You name all of them. Everything came out either twice as long or twice as expensive.
The build-out, $100,000 and at the end of the build-out, it was $200,000. They said 3 months, it took 6 months. If you estimate, “I think this client, it’ll be about 20 hours per month.” Why not say that you might spend 40 hours and if you get it done in 20, you increased your profitability by whatever percent that is?
If you estimate, double that and you get the work done in fifteen hours, then kudos to you because your team and staff are becoming more efficient. It makes sense that you need to be able to figure out what your effective hourly rate to be but you also have to think about how long it could possibly take you in a worst-case scenario.
I love that idea and my wife will be the first one to say that I am the world’s worst at estimating how long anything is going to take. If she’s like, “How long are you going to golf for?” “I’ll be gone two hours.” She knows it’s probably going to be four hours. I’m right there with you but figuring out the effective hourly rate thing is one component of how I would go about the pricing strategy.
Your right, if you want to build in some 25%, 50%, 100% of wiggle room, then that’s great. There’s nothing wrong with that. The challenge starts to become when you’re going on a fixed price model. Let’s say that you built in that a hundred percent buffer, where you’ve doubled the number of hours, you can quickly get to a point where you’ve priced yourself out of work.
That’s why like step two on the pricing. Step one, figure out the effective hourly rate multiplied by the number of hours. Step two is, I say, “Go out and do some market research and figure out roughly if your client or your lead were to go out and shop it in the open market what is the next guy or a girl down the road going to be quoting approximately for this?”
Upfront Payment: The two big hurdles to adding value for your clients are the story you’re telling yourself and getting that pushback.
You don’t have to go out and get quotes. If you’ve been in business longer than six months, you have a rough idea of what the going rate is for the project or that particular scope of work. It’s this balancing act between what is my effective hourly rate times the amount that I want to or the number of hours I think is going to take versus what is the market rate?
The third part that you’ve got a balance in there, and this is the one that we lose sight of a lot of times in this profession is, what is the value proposition to the client of the work that we’re doing? What I mean by that is, let’s say that you have a client that is maxed out with stress, fear and anxiety over cashflows. They’re worried every single payday if they’ve got enough cash in the bank. It seems like they’ve never got any money to reinvest in the business. If you come in as their new fractional CFO or their new accountant and you’re going to help them with cashflows, there’s a ton of value to the work that you’re going to do for them.
It can be a literal game-changer for them. If you’re going to come in and do a tax strategy package and you know that maybe this is multiple eight-figure businesses, then a tax strategy package could save them $100,000 plus a year, then there’s probably $20,000 to $30,000 of value in that for the client. The three components of this pricing is your effective hourly rate that go into the market rate and what the value proposition is to the client. At that point, it becomes this art rather than a science where you’re blending all three of those together and taking all three of those into consideration. That’s how we’ve found the most effective way to come up with our fixed pricing.
That’s a great exercise for everyone to go through. You implement it and you see what works and you get paid upfront. You don’t send them a bill. You ask for payment on the spot and you get their credit card or you get an ACH form ready to go and fill out, then you’re on your way.
That’s what we do because we know what our scope of work is. We only offer three packages. We have our CFO core package, our advanced package and our executive package. We’re good now because we know who our ideal client is. We know who we will and won’t work with. We’re good at knowing upfront how long the work’s going to take. We’ve been perfecting it for years now but I’ll get on a sales call and do some discovery, asking them questions about them and their challenges, etc. I get into my pitch and I am good at selling them on the transformation, the emotional side of it. I back it up with the tactical bookkeeping, accounting tax strategy, whatever work we’re going to do.
I say, “In order for you to get this, the price is $7,000 a month. The way that we work is, I’ll send you over the contract, you’ll sign it. Part of that contract process, you put your payment in and we collect that money upfront at the beginning of the month and we’re off to the races.” This is normally the kickback or the pushback that I hear from people. I tell them as they say, “People are never going to do that.”
Michael, I hear that all the time, “No one’s ever going to pay me upfront for my services.” I’m like, “I’ve helped 100 accountants change their whole business to get paid upfront and collect every dollar owed to them.” I had one client, Amani. She had over 40,000 in AR, all collected. I have two people in one of my classes, Jack and Lynn, start at $27,000.
They have one client left to pay him $310,000. Every single penny due to you will get collected but then this is the next step so that the cycle can be broken because we don’t want to chase clients down. We’re not getting paid for that time. It’s a horrible client experience from the sales side of things.
There are two big things that are going to keep you from being successful with this, I think, are two considerations. The number one hurdle you’re going to have by far into getting your clients onto a pay upfront model is you. You are telling yourself this story on behalf of your clients of what they will and won’t do.
You’re telling yourself this story because that’s the way it’s always been done. I’m telling you the game is changing. Clients are expecting it because a lot of your clients are collecting money upfront from their people. I put it very similar to people that charge credit card processing fees. There are so many people now that are charging their clients 36% or 3.5% if they pay with credit cards.
Everyone’s doing that now and a lot of people are collecting upfront. The number one hurdle is the story that you’re telling yourself that you’re what your clients will and won’t do. The second thing, this is something that comes into play. I would say about 20% of the time on my sales calls. I’ll get a little bit of resistance sometimes on a sales call like, “Mike, it’s expensive. I don’t know you and to pay you $5,000, $6,000, $7,000 upfront, it’s a little risky.”
Get in the game, try it out and get on that next sales call and do it. Click To TweetWhat we did at KFE is we don’t do contracts. We have a month-to-month contract, but there are no long-term contracts. I tell people, “Let’s start. If at the end of the month, you don’t think that we delivered. If you don’t think you’ve got the value that I’m selling you now, then you can cancel and walk away. No harm, no foul. I’ll also make you this guarantee. At the end of the month, if you don’t think that we delivered that month, I’ll refund your monthly fee for the month.”
I’ve put it out there on the line for years. We have never had one refund request, but it pushes that 20% of people over the line. The other thing that I’ve found that it does is it keeps my team and me hungry. It keeps us from being complacent. We are always dedicated and all in on doing anything we can to find value for our clients and to add value for our clients because we know that if we don’t, there’s a chance that they might ask for that refund. My team is paid off of revenue, not off of an hourly rate or a salary. I pay my team as a percentage of revenue. They all know that they’ve got skin in the game.
We have some good conversations internally about what can we do to add value for our clients and what other things can we be considering for them? The two big hurdles are the story you’re telling yourself. Number two is you may get that pushback. I would encourage you to think, is there a 30-day money-back guarantee that you can offer for that small percentage of people that are going to push back?
I’m in alignment with everything you’ve said so far. I know you said you had one other tactical step for us. I’d love to know what that third tactical step is that you would like to share with the audience on how they can tie this up with a nice bow on getting paid upfront and putting an end to their AR, never having to chase down a client again and never having to send out a proposal or an invoice and wonder what happened to that client, “They disappeared on me. They ghosted me.” It eliminates probably five other things but we won’t get into that. What’s that third, last tactical tip that you have?
Get in the game. What I’ve found the best way to do that is I have no skin in the game on this. I love practice ignition because inside the practice ignition, I have the contract. I can put it in there when I send the contract to require payment upfront. The client gets it, put their payment in, sign the contract and now it’s behind me. I don’t have to deal with it anymore every month on the first of the month.
They get billed in advance for that month that we’re about to start work with. To push yourself over the edge, take a look at something like practice ignition, where you have that option right in your contract for the payment. It integrates great with QuickBooks and zero. Get in the game, try it out and get on that next sales call and do it, “This is how we do it. Here are the contracts and you’re off to the races.” Don’t over plan. Don’t overthink it. Beyond the brainstorming where you’re thinking about all the requirements, everything like that. That’s all super important but once you’ve figured it out and you know like, “This is my $1,500 a month package.” Get in the game.
I always say, “Get in the game or words I’ve said is a start because you don’t know what’s possible until you see.” There’s a 50/50 chance that this might work. Has it worked for people like Michael and others I’ve seen? 100%. The only way to see that it’s going to work for you is to try because if you don’t try then it’s 100% never going to work.
If you try, you have a 50/50 chance that your clients and your future clients are going to be 100% on board. Thank you so much for joining us here on the show. It was an honor to have you here and taking out the time to share this. It was great knowledge and great wisdom. Hopefully, you all took a lot of notes. As we always say, it’s time to get into action.
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About Michael King
Michael King is the CEO of KFE Solutions, a top rated fractional CFO firm based in Dallas, TX. He is also the creator of The Connected Accountant: the community, coaching, and resources you need to profitably scale your bookkeeping, accounting, or fractional CFO service.
After spending 11 years in the US Navy supervising nuclear reactors on submarines, Michael transitioned into the world of business. He is passionate about helping business owners understand their numbers so they can make better decisions.
