If Tax Prep is Your Core Money Maker, You’ll Always Have a Busy Season

Hey 👋 - Brandon here.

Happy Saturday to 1,466 growth-minded accountants.

Here’s one growth tip for you and your firm.

Today’s issue takes less than 10 minutes to read.

Traditional firms believe tax preparation should be their core money maker.

All customer support, communications, and processes are built around a 1x per year touch point. Collect documents, input data, review data, deliver to client, bill for time, repeat.

And it somewhat makes sense to build a business around tax prep.

Everyone needs a tax return prepared. Do a decent job and most clients will stick with you year-after-year. 100 returns turns into 200 which turns into 400 and so on. When the same staff work on the same returns, their efficiency increases meaning more profit for the firm.

Unfortunately, building a business centered around tax prep being the main service offer has resulted in:

• Crazy busy season hours

• Lack of attention to client’s real needs

• Missed opportunities to roll out advisory services

Tax preparation should be viewed as a loss leader (that plays a vital roll in the firm’s flywheel)

Firm leaders enjoy complaining about long busy season hours and are never short of ideas on how to increase workflow efficiency and reduce client touch points.

But few are willing to admit the truth:

They are making too much money on tax preparation services.

As an example, let’s look at a $2M firm making 100% of its revenue from tax prep. The firm nets, before partner pay 45%, or $900,000. The partners are heavily involved in tax prep and are always stressed out during busy season. As a result, not much gets done in terms of firm improvement between Jan - Apr and Aug - Oct.

The firm spends $200k on overhead and $900k on salaries/benefits.

The team might look like 2x admins, 1x manager, 3x seniors, and 3 associates. Can that team, plus the two heavily involved partners, complete $2M worth of tax returns?

Probably.

But what if the partners were okay with a 20% margin instead of 45%? That would provide this firm an additional $500,000 of capital to invest in salaries/benefits.

The result is an extra manager, an extra senior, and two extra associates.

THAT team will get $2M done relatively easily, and probably without much need for partner support. The partners will have finally smoothed out busy season leaving them ample time to focus on other firm building and growth projects.

Better yet, clients will give you tons of positive feedback about their experience working with your firm.

Flip the traditional model on its head

I’m not saying don’t make money on tax prep.

But I am saying to consider making less money on tax prep, building a large base of clients who love you, and offering them additional services that help them run their businesses and grow their wealth.

Make your money on those additional services.

This is a long term view and focuses on building enterprise value rather than take home pay. It delays the gratification of getting your bag after putting in all those hours to build your firm.

It’s hard to admit you need to give up cash flow in the short term to finally solve the busy season dilemma.

But in most cases, that’s exactly what needs to happen.

To grow a firm, you need talent, and the talent pipeline is shrinking

It’s no secret accounting has a talent pipeline problem.

It has become harder to find staff and labor costs are increasing globally. On top of that, younger accountants in public are tired of the hours that busy season brings without seeing the pay match the output.

But you must be a magnet for talent because, in the long run, whoever has the best talent wins.

When you cut your margin from tax prep services, by right-sizing your staffing, you can offer reasonable hours, good pay, and growth opportunities other firms can’t. Your managers can focus on tax planning with clients rather than 2nd reviewing 100s of returns.

Your partners can focus on business development, even during peak season.

Build a business model with the Walmart mantra in mind: “your margin is my opportunity.” Don’t be self conscious when you see people on Twitter say “everyone talks about revenue but hOw MuCh ArE YoU ReALlY MaKinG?” They don’t understand enterprise value or scale. They have a short-term mindset of making cash flow today, not a long-term mindset of building an attractive platform.

Make your money in the long run, cut it in the short run, and watch your firm grow faster than you ever thought possible.

That's all for this Saturday. See you next week.

Whenever you're ready, here's how I can help you.

→ Work with me 1:1 to grow your firm (now accepting waitlist coaching applications)

See you again next week.

Cheers,

Brandon

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