Xpitax News Articles
Don’t Stop Selling!
A recent trend has been to try to “upgrade” clients. Changes in the Big 4’s strategies have been making many firms dream of the bigger and better client. After all isn’t one $50,000 client better than fifty $1,000 clients? They generate the same amount of revenue, so isn’t is easier to manage one client as opposed to fifty.
There is an interesting logic being applied to “upgrading.” Some of the reasons cited for following the “upgrading” philosophy are “we are short on staff so we cannot afford to do this work during busy season”, “we can no longer afford to service low fee clients”, or “it’s the type of work we prefer to do.” All good reasons, but isn’t the primary objective of your business to maximize your personal net wealth? Assuming that the profit generated by the one large client and the fifty small clients are the same, your net wealth will be increased with a whole lot less risk and possible write downs with the smaller clients. So bigger, may not be better.
Now, many firms don’t want tax return only clients.
They only want big fee engagements. The problem that will arise is a supply and demand issue. Take a funnel and turn it upside down. The big jobs are at the narrow top of the funnel and the small jobs are at the widest part. If everyone begins to compete for the big jobs, the service demand will be met with an increased number of suppliers. The result will be a decrease in price.
Now look at the top of the funnel. There are far more small businesses in America than mid-size to large entities. The wide part of the funnel is large and if more firms move down the funnel neck focused on the bigger jobs, that leaves less firms servicing the largest group of clients, the small business and individual tax payer. In theory fees would increase. Combine this with the fact that about 85% of the CPA firms in the country are small one to four person practices with one partner, and a great deal of these practices owners will be retiring in the near future, there will be a glut of small practices for sale.
Focus on the realization potential,
not the size of the opportunity.
Set goals based on the profitability of the client. It should be a mix of getting the upgrade clients and setting up a process to increase the workflow of tax only clients. Create a tax client only profit center. Move the individual returns and small corporate, partnership or estate returns into this center. Assign a strong tax partner to be in charge of it, but have a manager run it. Outsource the preparation work and focus on the review and delivery. During the client delivery create a brief series of questions to upsell the client. Ask about their retirement plans, college needs, estate planning, eldercare situations, and investment strategies. If it’s a business, ask those same questions, but add in items that address succession or exit strategies, and questions about valuations or insurance for the partnership or corporation buyout agreement. If you don’t have a questionnaire like this contact us and we will send you one.
The opportunity to buy small practices can boost profits.
Most small practices poorly mine their clients. You can incorporate their heavy tax focus into your firm, outsource the overflow, and make a killing off of the tax services and the additional client mining that can be done. However, this large client mentality has gotten many firms to miss the obvious opportunities in front of them because they are trying to operate a practice in 2004 with a 1970’s pencil to paper, pre-Internet mentality.
Don’t stop selling. Just refocus your management style. Trust your staff so they can grow. When you do this, they will become more capable of filling your shoes one day, and the entire firm will become more profitable.
For additional strategies on how to use outsourcing to enhance a practice’s growth, Xpitax can provide the leadership other outsourcing companies cannot offer.
For additional information on selecting an outsourcing provider, please contact Glen Keenan at 781.303.0136 or via email at gkeenan@xpitax.com.