The fee most firms forget to charge

A new client comes to you in October. Their financial year ends in December.

You agree a monthly fee, start collecting it, and in due course you prepare a full set of accounts and a corporation tax return covering the whole twelve months.

You have been paid for three of them.

It happens because nothing about it feels wrong

This is not carelessness. It is that every individual step is sensible.

Agreeing a monthly fee is right. Starting it when they join is right. Producing accounts for the full year is right, because that is what the year is.

The gap only appears when you put the three together, and by then it has already happened. Nobody notices at the point of quoting, because at the point of quoting you are thinking about the ongoing relationship, not about the period that ran before it started.

Most firms never think to charge it, and quietly give away weeks of work on every mid-year signup.

Do that four or five times a year, for a few years, and it is a meaningful sum. It is also completely invisible, because the money was never on an invoice to begin with. You cannot see a fee you did not charge.

The alignment fee

What solves it is a one-off charge covering the part of the year already gone when they joined.

Client joins in month ten, so nine months of the accounting year were before your monthly fee started. The alignment fee covers those nine months. From then on the monthly fee runs normally and everything is in step.

That is all it is. It is not clever, and it is not a penalty.

It is worth being explicit about that, because "extra one-off charge on joining" can sound like a sign-up fee designed to catch people. It is the opposite. It is being paid for work you are definitely going to do, on a period you were definitely not paid for.

How to explain it

Clients accept this readily when it is put plainly, and the reason is that it is obviously true once said.

"Your year ends in December. We will be preparing accounts covering the whole of that year, including the nine months before you came to us. Your monthly fee covers the period from now on, so there is a one-off amount to cover the earlier part."

Nobody has ever needed that explained twice. The client can see the accounts have to cover the whole year, and they can see they were not paying you for most of it.

Where it goes wrong is when it appears without explanation as an unlabelled figure on a proposal. Then it looks like a fee that was added to make the numbers work, and it invites a question you have no good answer to.

Two things people get wrong

Confusing it with prior year work. The alignment fee brings the current year into step. It is not the answer to a client who arrives with two years of overdue accounts and an unfiled return. That is separate work on separate periods, and it should be priced separately and openly, not folded into an alignment figure that is doing something else.

Applying it to everything. It only makes sense for annual work: the accounts, the corporation tax return, the personal return. Monthly and quarterly services - payroll, bookkeeping, VAT - start when they start, because you are not doing anything for the earlier period. Charging alignment on payroll would be charging for months you did not run.

"Will it not put people off?"

This is the worry, particularly for anyone newer, and it is worth answering properly rather than reassuringly.

In practice it does not. We have charged it for years and it is not a conversation, because the moment you are having it is the moment the client most wants the problem solved. They are sitting in front of you because something is wrong with their current arrangement. That is the point of greatest motivation in the entire relationship, and it is the easiest moment there will ever be to set out plainly how you work.

Now consider the alternative, which is what firms do when they skip it.

You take the client on, you charge the monthly fee from when they joined, and the shortfall sits quietly on their account. Then, months later, they get a statement showing they owe you an amount they were not expecting, for a period they had stopped thinking about, relating to a financial year that ended some time ago.

They will not remember. They will not follow the explanation, however patiently you give it, because it depends on holding two overlapping periods in mind at once. And you will be explaining it while asking them for money, which is the worst possible combination.

An awkward sentence at the start is always cheaper than a confusing invoice nine months in.

Transparency at the outset is not a risk you are taking. It is the thing that stops the risk existing.

The decision, not the default

There will be times you decide not to charge it. A client you have wanted for years. A referral from somebody important. A very small job where the alignment fee would be more trouble than it is worth.

All fine. The difference between that and what most firms do is that it was a decision.

At the moment, for most practices, this is not being waived. It is being missed. Nobody chooses to hand over nine months of work; they simply never see the question.

In Power Pricing you enter the client's financial year end and the date you are taking over. The alignment fee is worked out for the annual services and shown in the day-one total, so it is in front of you at the moment you are quoting. You can switch it off for that client if you want to - but at least then you are choosing, in the open, rather than finding out in nine months' time that you did a year's work for three months' money.

Worth checking

Have a look at the clients you took on in the last twelve months, and note which ones joined partway through their financial year.

For each of those, work out how much of the year you ended up covering that no fee ever reached.

It is usually a bigger number than people expect, and it is the cleanest money a firm can recover, because it does not require charging anybody more for anything. It only requires charging for what you were already doing.