The 1-3-12 Formula
As any business owner would know, anything and everything can change.
And usually without much notice.
So when it comes to how we charge for the MVP Accounting and Finance Function, we have a specific programme in place that ensures you never get any surprise bills or unexpected fees.
We call this the 1-3-12 formula.
And it’s really simple to understand and follow in practice.
Historically, accountants would charge clients a fee based on the work performed so long after the accounting period has ended that it would always be nigh on impossible to accurately price the fee correctly.
Usually, it would be a stab in the dark or worse - a continuation of what has always been charged.
This system was never fair for both the client and the accountant.
It created misconceptions, misunderstandings and missed opportunities.
It was lazy.
But there is a new approach that eventually most accountants will look toward.
And it works like this.
Every month (aka the 1 in the 1-3-12 formula) we review payroll changes (i.e. starters and leavers) so that in the following month we can accurately charge you for the current payroll scope.
Every quarter (aka the 3 in the 1-3-12 formula) we review bookkeeping changes (i.e. bank transactions etc) so that in the following month after the quarter has ended we can accurately charge you for the current bookkeeping service levels.
Every year (aka the 12 in the 1-3-12 formula) we review sales turnover changes so that in your service renewal we can accurately charge you for the current annual accounts, CT600 and VAT
All of these prices amendments will be insignificant because you’ll already be paying the bulk of the fee.
Example 1
It is coming towards the end of Month 7 in the accounting period.
A payroll review report from the same month has indicated that there was one starter and one leaver.
The invoice for Month 8 will reflect no change as the staffing levels have returned to the status quo.
Had the new starter been delayed to Month 8, the following would have happened:
Month 8 Invoice = decreased by x amount
Month 9 Invoice = increased by equivalent x amount
Thus, there would have been a saving in one month before reverting back to the previous total.
Example 2
It is coming towards the end of Month 9 in the accounting period - or the end of Quarter 3.
A Dext Precision report has highlighted that the average number of monthly bookkeeping transactions has increased by 20% from 125 transactions per month to 150 (roughly an extra 75 items per quarter).
The invoice for Month 10 will be adjusted to reflect the increased scope in bookkeeping work by 20% as per the average monthly increase (25 items) not the quarterly total increase (75 items).
In other words, the new monthly fee ignores the total increase and instead settles on an average.
It would possibly be too much work to review bookkeeping every month even though there may be times when there are crazy spikes in transaction levels - especially for seasonal transactions - that would normally see a price change arrive earlier than a quarterly amendment.
Thus, the quarterly review gives you the benefit of the doubt whereby spikes in activity are not indicative of an actual increase in the monthly average due to timing.
Example 3
It is coming towards the end Month 12 in the accounting period - or Year End.
The latest set of management accounts predict that the turnover for the financial year will be £90K lower than the previous period of £450K.
This means that the business will move down a turnover band (from under £710K to under £420K).
This also means the service renewal will be adjusted to reflect a lower fee for the annual accounts and Corporation Tax service fee, and additionally the quarterly VAT service fee.
Because turnover is so interchangeable, it is only right that it is reviewed on an annual basis.
But because the information is driven by actual live data taken from a full 12 month period, it also means that the future charges for the annual accounts etc are fairly locked in for both parties.
And that is the 1-3-12 formula!
