Your clients' accounts record what was agreed. Not what was allowed

A set of accounts is a faithful record of what was agreed and what was invoiced. It is silent on what was allowed in between. The extra delivery that was never charged for. The concession granted in a phone call and never written down. The scope that grew a little each quarter until it no longer resembled the engagement letter. The additional value a customer would happily have paid for, which nobody thought to offer.

None of that is fraud, and none of it is waste in the sense a cost review would find. It is ordinary commercial behaviour, one reasonable decision at a time, made by capable people trying to keep a customer happy. Which is precisely why it persists. Nobody did anything wrong, so nobody stopped it.

Applied to Australian Bureau of Statistics data, the scale of it is $21.8 billion a year. That figure takes the 231,884 businesses turning over at least $2 million, counts every one of them at the bottom of its turnover band, applies the ABS EBITDA margin, and then applies a 15 per cent recovery rate. The business counts and the margin are the ABS's, from Counts of Australian Businesses to June 2025 and Australian Industry 2024-25. Only the 15 per cent is mine.

It is also deliberately the bottom of the range rather than the middle. Counting every business at its band floor produces a revenue base of $1.032 trillion, which is 19 per cent of the total income the ABS itself reports. The estimate is built to be too small.

Here is the number I would actually put in front of a client. Since 2017, 39 businesses have been scored on the same commercial capability instrument. Scores run from 24 to 69 out of 100. Not one has reached the top band. Not one.

That is not a distribution with strong performers at one end and stragglers at the other. Every business measured had margin it could recover.

Across 89 engagements classified in detail, the failure concentrates in two places. In 77 of them the root cause was contracting: how commercial agreements are defined, protected and upheld. In 53 it was measuring: whether anyone in the business can see customer profitability at all.

And now the part that stings, because it is about us before it is about our clients.

Roll those engagements into sector families and professional services is the only family where the lead failure is not contracting. It is measuring. Nine of the 11 professional services businesses examined could not say which of their clients were profitable.

An accounting firm is a professional services business. It bills time against a scope, absorbs work it does not charge for, and writes off at the end of a job what it cannot comfortably justify. The write-off percentage on billings is the most honest number in a practice, and it is this same phenomenon wearing a different name.

So the practical suggestion is this. Before you raise it with a client, run it on the firm.

Take your five largest clients and ask four questions of each. Is there a current written agreement that describes what is actually delivered today, rather than what was scoped two years ago? In the last twelve months, what was delivered beyond it and never billed? What did that client need that we could have provided and did not offer? And can anyone here state the margin on that client this month, not this year?

If two of those four cannot be answered cleanly on your own book, the client conversation writes itself, because you will have had it about yourself first. Across the 23 engagements where a dollar figure was actually recorded, the median was $600,000 found in a single business.

Accountants are not short of ways to tell a client what happened last year. What clients are short of is anyone who can tell them what next year is quietly giving away.

Paul Allen is the founder of Margin Partners.