In Management Insider #4, we encouraged management companies to provide their managers with tools and support to help them communicate with their clients. This is especially important for newer managers who may not have had the opportunity to grow their emotional intelligence or general business acumen at this point in their careers.

Getting challenged by a client about your company’s practices or business model can be source of considerable anxiety, even for the most seasoned managers. A knowledge of contract specifications, the company’s business model, and business fundamentals can help a manager address challenging situations successfully. These interchanges can either go a long way in building and maintaining confidence and trust, or they can sow the seeds of distrust and discontent. Preparation is everything. And a little practical strategy doesn’t hurt, either!

Don’t Assume They Know

Clients want stuff done. The details are less important, like whether the work being requested is included in the scope of the management contract. Managers must be aware of their contractual responsibilities. But don’t assume the client is aware of them. Nine times out of ten, there’s no evil intent, just a lack of awareness.

The manager’s job is to communicate reality tactfully, yet clearly. The first answer should not be “no.” It is much better to agree that this task needs to be done, and then communicate the options to accomplish the task, even if that means additional billable hours.

Managers must also be aware of their limitations. They are not licensed to practice law. They are not trained as professional engineers, nor are they CPAs. True, managers may have high levels of expertise in certain areas, but they still cannot assume the liability that comes along with accepting responsibility for every task. Yet, clients may not be aware of this these distinctions. Our favorite line: “I would love to take care of this for you, but I don’t think you could afford me if I had a J.D, a P.E., or a CPA.”

Remember, the manager’s key competency is finding a way to get things done, not necessarily doing everything. Clients may forget that from time to time.

Be Prepared to Explain the Model

Helping managers to explain basic business concepts as applied to the management agreements can be useful to help everyone to get on the same page. Clients may raise an eyebrow about reimbursable and extra charges over and above the base management contract. The reality is, there are a few ways to approach pricing to get the compensation needed to run a company.

Imagine a contract for a repair where every condition cannot be known, such as façade renovation for a high rise building. The contractor has two basic options. He can provide a price based on specific quantities, plus line item pricing for specific repairs in the event the final quantity is greater than the base contract. From the client’s perspective, there is a risk the final cost will be more than the base contract. At the same time, they will only pay for the services that are provided.

On the other hand, if a client demanded a set price contract with no possibility for extra charges, the contractor will have no choice but to bid high to account for worst-case scenarios in order to provide a set price. While the client will know what their exposure is, they may well be paying for services not received.

Management contracts are similar. There can be many variables in the operation of an association. Long meetings, extra meetings, major project administration, and insurance claims can require significant time and effort. And yet, they may not happen. Special assessments, bylaw revisions and the like will require much more copying and postage expense than would more typical operations. Asking a management company to eat these costs is as short-sighted as asking a contractor to do work for free. Neither will be in business very long.

Under pressure, managers may respond defensively to questions about so-called “extra charges.” This is a natural reaction. Unfortunately, it also undermines both their and the client’s confidence and may begin to erode trust. Helping a manager to prepare for the question and to explain the business model can avoid unnecessary conflict and maintain the relationship.

The Zero Invoice

My mentor taught me about the power and utility of the “Zero Invoice.” The strategy is simple. When the manager performs a task outside the scope of the base management contract, an invoice is generated in accordance with the terms of the agreement. Let’s say a board meeting lasted four hours, and the contract allows for a maximum of two. Let’s say the contract calls for an hourly rate of $75 per hour. The invoice would clearly show the billable hours, but also include a notation of a courtesy discount of $150, resulting in a net due of $0. It could be either emailed to the board or included in the next board package as an informational item.

This is brilliant for a few reasons. First, it establishes or reinforces the value of the manager’s time. Second, it informs or reminds the board of the contract terms. As such, it can be issued after the manager provides advance notice, or as a tool to be that notice. Finally, it creates space for a healthy discussion to plan moving forward.

It’s About Trust

When trust is present, relationships thrive. It takes time to build but is all too easy to lose. Fair or unfair, perception is always a major factor. Little interactions make or break trust, and eventually, relationships.

Training portfolio managers on the technical competencies of the job is critical. Preparing them for real-world business questions can be just as important. Get both right and build trust. Fail to do one of them, and trust may be eroded. Build up your people, build trust, and strong client relationships will follow.