Xpitax News Articles

Why Do CPA Firms “Burn Cash” in the Off-Season?

By: Mark Albrecht – a partner at KAF Financial Group in Massachusetts, and founder of Xpitax, an outsourcing group for the CPA profession.

Firms hire to staffing levels required to service busy season demands. Most firms hold on to professionals for the entire year because rehiring and retraining is too costly. As result, cash reserves accumulated during tax season are spent to cover fixed personnel expenses during slower periods. How much “off-season” work a firm can generate dictates the amount of tax season revenues needed to fund down time.

Imagine the profit impact of a staff utilized for twelve months. If a practice could adjust permanent staffing levels to be busy for twelve months, there would be no need to “burn” tax and audit season profits. Permanent staffing is why a firm should examine outsourcing tax and other services. It is not a seasonal decision; outsourcing is a method of managing annual full-time staffing and money management decisions.

There are four ways to reduce the cash burn in the off-season:

1. Acquire additional off-season audit, tax and accounting work. Generally this is easier said than done. The competition for March to October compliance work is fierce and price sensitive.
2. Increase off-season revenues with existing clients. Mine clients to create demand for non-compliance services and deliver these services in the off-season.
3. Terminate unneeded off-season professionals. This is not always practical. Rehiring and training costs are one factor, but the bigger issue is turnover. Turnover affects client service and impairs your ability to re-hire professionals from the local pool of candidates.
4. Outsource tax season overflow. If in-house resources are supplemented by outsourced tax preparation services, a firm does not need as many permanent professionals during tax season peak. In-house staff can manage the review process, be used to handle other responsibilities, and reduce time spent preparing returns. This also enables a firm to aggressively look for additional tax work if they have an outsourced agent to do the majority of the work.

Permanent staffing levels can be refined to meet annual needs and not be driven by seasonal demand. Outsourcing balances the geographic supply and demand principles for firms. Our Massachusetts practice has limits on the available supply of trained professionals, but our outsourced agent has a large, trained supply of resources to work during the busy season. We use our higher paid workforce for more complex tax and audit work and outsource preparation to a more cost efficient channel. Currently, we outsource 100% of our individual tax returns and about 15% of our corporate work. We plan to outsource a significant portion of our corporate, partnership and trust tax returns. It is unrealistic to expect to outsource 100% of all tax work. It is realistic for us to expect our in-house professionals to devote more time to our client’s business issues, tax planning and strategy. Compliance is a necessary function, but clients place little value on the process we use to prepare the return!

We received financial and “staff intangible” benefits. Beyond profits, the employee trust and loyalty earned was immeasurable. It will be difficult for professionals to leave our practice because other firms will require them to work more extensive hours. Instead of working to 10:00pm or midnight, employees went home at 6:00 pm to 7:00 pm on weekdays. Saturdays are now half days. We cut our busy season 70-hour workweek to 50-hours.

Specifically, outsourcing has accomplished four goals:

1. Lowered the internal cost of each tax return.
2. Balanced the use of full-time personnel.
3. Shifted the focus of our skilled CPA’s from a 90%/10% compliance to advisory objective to a 70%/30% mode. Our professionals were focusing on areas clients felt had more value.
4. Employee and customer satisfaction was at an all time high. Most returns were prepared and ready for review within 12 to 24 hours of submission to Xpitax.

Workflow automation played a major part in this process. Workflow is a component in the outsourcing solution, but that is a story for another day. Outsourcing is more than a “pricing decision”. It is a method of increasing profits, improving the lifestyle of partners and employees, and advancing the use of technology in your practice. Any CPA’s primary goal should be client service. If the client does not see the value of the compliance work provided, how will they learn to value your services? By diverting preparation work to a cost effective source, your professionals will develop stronger bonds with clients.

Mark Albrecht is a partner at Kirkland, Albrecht and Fredrickson (KAF) a CPA firm in Massachusetts and co-founder of Xpitax, an outsourcing and workflow automation business. Mr. Albrecht has been a practicing CPA for 25 years and can be reached at 781.303.0136, malbrecht@xpitax.com or at www.Xpitax.com