Tom Talks Taxes - April 15, 2022
It's time to reconsider the high-volume, high-stress tax business model
Are you swamped? Are you not sleeping enough? Is your anxiety at an extreme level?
Don’t forget these five things over the remaining days of tax season:
Ensure your own return is extended or timely filed.
On April 18 (or earlier), check your list of individual clients who signed engagement letters and ensure each return is extended or timely filed.
On April 20, check your e-file acknowledgements and correct any rejects within the perfection period, which is five calendar days.
Take at least one week off in order to refresh and recharge before tackling any extension returns.
Remember how you feel in these closing days so that you commit to real change for the next tax season.
The tax community has been raked over the coals over the last three years with the increased complexity of returns and significant tax law changes.
In addition, the tax return deadline postponements for tax year 2019 and 2020 returns allowed tax practices to take on more clients, and now that larger client base likely doesn’t fit into a tax season with an April 15th tax return deadline.
I’ve seen some advocate for a permanent tax return deadline change; however, I think simply changing how we work and view our businesses will do far more to alleviate the overwork problem than extending tax season by an additional month or two.
Today’s reality is that good tax professionals are in high demand. You can price your services competitively and, by doing this, you can offer enhanced services to clients because you’ll have more time to devote to those clients.
You can move away from the high-volume, high-stress tax business model! My friend Dominique Molina, CPA, CTS, President of the American Institute of Certified Tax Planners, advocates that there is “better math” in the tax industry, and I agree.
The first step is to determine your ideal business size: this drives the type of business that you want. Perhaps you need to gross $1 million dollars per year due to overhead; on the other hand, maybe you are a sole practitioner with low overhead and $100,000 is just enough for you. There is no one right answer to this.
Let’s assume you want to gross $150,000 in your tax practice. You can achieve that goal in many different ways. Here are three examples:
$250 average fee per client and 600 clients (yikes)
$1,500 average fee per client and 100 clients (definitely better)
$15,000 average fee per client and 10 clients (yes, this is possible)
You can develop an ideal client base and appropriate pricing to have a healthy work-life balance year-round. An ideal client base considers both total number of clients and types of clients. In addition, the right tech stack (i.e. the collection of technologies used to build, run, and grow your business) can increase efficiencies so that you can focus more on your ideal client base and less on administration.
I know many of you want to help as many people as possible, so you don’t want to increase prices and turn clients away. But are you really helping them? Both the increasing complexity of tax returns and the client need for advisory services make a high-volume, high-stress practice not ideal. Does the extreme workload cause you to make mistakes or miss opportunities for your clients? Is simply getting the return off of your desk the primary goal all too often? Is any of that in the client’s best interests?
Don’t forget your health — you can’t help anyone if you are dead, sick, or incapacitated. You deserve to have restful sleep and time with family and friends from January through April. Early in my career, I was diagnosed with cancer, and it made me realize that I wanted and needed to work on my own terms so that I could recover and thrive in a lower stress work environment.
Historically, we could justify the January through April extreme workload by taking off the rest of the year. That just isn’t feasible anymore in today’s tax environment: clients get IRS and state notices, refunds and return processing are delayed, and clients need help navigating a host of IRS and state issues. Clients also need ongoing advisory services — they may not ask for it, and they may not realize they need it, but your advice can have a positive effect on their tax situation and overall financial health.
You may not know how to change, or you are afraid of the outcome, and that is OK!
Over the next few months, I’ll be writing more about this topic so that you can work on having a much better tax season next year. You can use the comments section of these editions to strategize, collaborate, and be accountable to your goals.
For now, I want you to do three things to start down the path of change:
Determine your average revenue per client. Simply take your anticipated gross revenue and divide by the total number of clients. You need this benchmark to plan for changes.
Make a list of the top clients that you love to work with. Why do you like working with these clients? Do they have any common characteristics? Do they work or have businesses in the same field?
Make a list of the top clients that irk you or your staff. Draft a letter by the end of April disinviting them from working with you next year. No matter the size of your practice, you deserve better. These people distract you from your business goals and the clients who actually deserve your full attention.
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