Tax season kicks off in just a few weeks. A lot of the firm owners we have spoken with are experiencing staffing challenges and wondering how to best respond. For many, change is being reframed from “maybe one day” to “must do now.” If you are forced to change or just looking for some ways to make your tax season easier and more lucrative, we have some tips that we’ve seen work very well for other CPA firm owners. Perhaps one of these strategies will begin a very positive transformation for your firm.
What is selling and what is sitting?
What the market can tell us about firms can be quite instructive about practice management. We’ve recently done a thorough analysis on our accounting firm sale history. Specifically, we’ve looked at Days on the market to spot patterns. A few things have really jumped out:
- Firms with heavy tax seasons, often caused by too much personal tax return volume tend to perform poorly in terms of owner cash flow, staff turnover, and owner hours. These firms take longer to sell and when they do sell, generally speaking, fetch lower multiples.
- In contrast, firms that are well staffed, focused mainly on business clients, and with value pricing in place, tend to have less staff turnover, lower owner hours and higher cash flow to owner (often above 40% to 50% of gross fees). These accounting firms are typically selling at or above asking price and relatively quickly.
Here are some introspective questions to get you thinking:
- Are you working more than is reasonable?
- Is your staff working too much?
- Are you hanging onto clients that are harming team morale?
- Are you doing substandard work that is costing your clients?
The staffing problems in the accounting industry may be a blessing in disguise. The scarcity of talent is forcing a rethinking of the fundamentals. Embracing this constraint may be the key to accounting firm transformation.
Where people struggle to sell their CPA firm is when they are poorly staffed for their workload, and owner cash flow is not attractive enough to make up for the heavy hours. Unfortunately, this is a predicament so many accounting firm owners find themselves in. Everyone in the practice is overworked and therefore you have trouble with staff retention and acquisition. If you lack cashflow on top of staffing problems, you are going to struggle when it comes time to sell. The answer is to cut the workload first.
3 strategies you can implement going into tax season:
- Prune your client list
Analyze your clients list. A few short hours looking over it might be the best investment of your time spent all year. I challenge anyone to do that and dispute this. The ones that need to go will pop out very quickly. Also, look at smaller fee clients and consider how many hours are involved with these clients and how much revenue is being earned. If you need a sample letter for terminating clients, download our free template. Another great strategy for pruning is to gather your team and ask them who they would like to see go. Your team will absolutely love this exercise.
- Raise Your Fees
This is a great time of year to plan your changes and increase your fees. I promise finding staff with great hours and at market or above pay will be far easier. You need the pay and work environment to compete with other industries.
We’ve never spoken to a CPA who regretted raising fees. Ever. Our experience has been quite the opposite. Fee increases are generally far more well received than anticipated. In fact, we had one past APA member who doubled fees and lost less than 10% of his entire client base. There is no doubt an art to pricing and this column can’t cover that in a few paragraphs. For a deeper dive on pricing, check out our podcast with Ron Baker. We talked for just over an hour on the essentials of converting to value pricing.
- Evaluate Solo Individual tax returns – This is possibly the lowest hanging fruit!
In other blogs I have mentioned how this has become a problem. Unless you are charging very high fees for these returns, they are not going to get you the right buyer, the right staff, nor the right bottom-line results. This is one of the patterns that was most clear to us when we analyzed the practices that were on the market longer. This is monotonous, time-consuming work and most CPAs underestimate what it really takes to perform this work well. Also- it really puts a strain on staffing resources during tax season. Unless you have seasonal help, it generally results in underutilization outside of tax season. The opportunity cost is huge. An outsized focus on personal tax returns distracts firms from focusing on the higher value work needed by business clients like advisory and tax planning. I recommend either implementing sizable price increases, cross-selling other services, if possible, or letting these returns go altogether.
You are in the catbird seat. A lot of firms are simply not taking on individual clients right now. From a pricing perspective, accounting firm owners are in a powerful position. If you have to wonder if you are charging enough, you probably aren’t. This will be a service to your clients and a service to your team! With extra income and fewer clients, you can pay yourself and your staff more and create a reasonable work schedule for the whole team.
How your clients benefit
Implementing any of these 3 strategies benefits your remaining clientele because it creates capacity to offer more high-value services. You are a skilled service provider and your good clients expect to pay for those services. They will find value in the analysis and advice you are able to provide.
For a case study of CPAs who did an amazing job of implementing change, please check out this clip from two of our past sellers who greatly benefited from increased fees and client list pruning.
P.S. – Whenever you’re ready, here are 4 other ways we can help:
- Seller FAQ: Answers to the questions sellers are asking. From practice value, to timing, we’ve got you covered.
- Strategic Guide to Selling your CPA Practice Video: The how-to of selling a CPA firm.
- Accounting Practice Academy: If you’re looking for benchmarks, our 8-week workshop has a community of established firm owners that will help you get perspective, reduce your owner hours, and raise your bottom line. email firstname.lastname@example.org with “APA” and we will fill you in on the details.
- If you want to chat about your exit strategy, email email@example.com with “strategy call” or request a call here.