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What is the best way to account for one-off fees when capturing fees won or lost?

Fees Won & Lost and Budget Preparation

To help firm owners and managers make a decision on how firms will capture "one-off" fees, we will first provide some context on the impact of Fees Won & Lost on the preparation of your annual fees budget.

Capturing Fees Won & Lost is not just about recording the value of annual fees won for a client, or annual fees lost, but it is centred on timing ie. when the firm invoices the annual fees. Timing means the invoice will be fully or partially included in current year billing, or fully or partially invoiced in the following year. 

Therefore, when you record Fees Won & Lost, you will assign the annual fees to the financial year the invoice will occur and use this information when you build your fees budget in the following year.

Example: 23 Degrees has won a client, North Star with annual fees of $10,000 plus one-off advisory for $2,000. North Star will be invoiced $3,000 for compliance and $2,000 for advisory in the current financial year and $7,000 for compliance in the following year. Fees won will be recorded as follows:

Tax & Accounting Division 

  • $5,000 allocated to 2024 (including one-off fees for $2,000)
  • $7,000 allocated to 2025 

When 23 Degrees prepares the annual fee budget for 2025, the baseline starts with annual fees billed in the 2024 financial year. Using the client example above, the baseline fees will include $2,000 of one-off fees. How does a firm account for one-off fees that have not been lost, but they will not be invoiced in the 2025 financial year?

What is the best way to account for one-off fees?

Ultimately, your Fees Won & Lost helps you manage your budget of expected income for the upcoming year, and quantifying the gap from fees not repeating. Since Fees Won & Lost is built off annual recurring revenue, recording one-off work in Fees Won can impact the quality of the 'budgeted fees' rolling forward.

The primary thing to focus on is capturing the annual recurring revenue when you win or lose fees. 

The secondary aspect is capturing one-off fees and deciding how you prefer to track it. Since all fees, whether recurring or one-off, do impact the fee base when it comes to budget preparation each year, it does require consideration. 

Options:

  1. Decide that one-off work under $X is not recorded as it is typically replaced by another job of similar value each year.
  2. Decide that you want to keep track of all sales including one-off fees: 
    1. Create a client industry source called 'One-off work" or something meaningful to your firm. Filter fees in this category to determine the value of non-recurring fees and deduct the total from your fee base when you prepare your budget next year; or
    2. Record fees won and record a corresponding entry in fees lost for the following year. Add 'One-off work' to the reason for fees lost. This method ensures you capture fees won (which forms part of the fee base) and at the same time, the budget planning process includes a section for fees lost which off-sets non-recurring fees in the fee base. Some users prefer to use this method because their is a placeholder for the information and you don't have to remember to do a manual adjustment to the fee base using option 1 above.

Applying option 1 or 2 above ensures you do not overstate your budget with non-recurring fees.

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