“Big data” is a term that has grown into prominence among business intelligence analysts since the early 21^st Century.  Coined by Gartner Analyst Doug Laney, it has grown to mean so many things to so many people that the term itself – and its value to managers of small businesses – has been largely lost.

As originally conceived, big data involved the collection, analysis and presentation of such massive flows of information that affect a business each day that the sheer volume makes the data almost impossible to work with.  It demanded not only new analytic tools but a different approach to decision making.  That’s possible for very large firms, either through enhancement of the business intelligence department or by hiring a reputable data analysis consultant.

Tax preparation firms don’t have the resources for such efforts, but may nonetheless benefit from the concepts and insights of big data.  Begin with Doug Laney’s original statement, which Gartner now defines as:

“Big data” is high-volume, -velocity and -variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision making.

One of the critical parts of this definition is known as the “Three V’s:

• Organizations collect data from a variety of sources, including business transactions, social media and information from tax workflow software. In the past, storing it would’ve been a problem – but new Cloud technologies have eased the burden.
• Technologies such as Google Analytics, enhanced data managers and data consolidation services are enabling companies to deal with torrents of data in near-real time. This allows data to be streamed at an unprecedented speed and dealt with in a timely manner.
• Data comes in all types of formats – from structured, numeric data in traditional databases to unstructured text documents, email, video, audio, county demographic data and financial transactions. Firm must be able to make use of analytical tools that can standardize this data so that is available for analysis.

With this definition, it is easier to conceive how even the smallest of tax preparation firms can aggregate and make use of Big Data.  On the other hand, in the 15 years or so since Laney’s initial work, the use of Big Data has been curtailed somewhat by concerns over data security and privacy. In general, this means that firms may only use “aggregate data” – data that contains no personally identifiable information.

Nonetheless, effective use of this data is essential for enhancing customer relations, helping to understanding clients and tailoring marketing programs to meet their needs; reducing the incidence of fraud in filing through pattern recognition; calculating the risk of audits; and identifying the services that generate the highest revenue per client.

For tax preparation firms, making use of big data is a five-step process:

• Find a Business Intelligence partner. Remember that it is not just you who needs business intelligence services – your small business clients need it as well.  In the process of identifying a suitable partner, you are likely to gain a better understanding of how the system works, and have another service to which to refer your business clients.  Make sure, however, that the partner you contract with understands the unique qualities of the SME markets.
• Identify your data sources and evaluate these for their value. Generally, these data sources will fall into four categories – streaming data sources that may be acquired at a small cost and provide general industry information on a scheduled basis; professional association data from such organizations as the AICPA and the National Association of Tax Preparers;  data from social media, including Facebook Page Insights; public data sources, including the S. government’s Data.gov, the CIA World Factbook, and other government sources including substantial amounts of data from the Internal Revenue Service, the Bureau of Labor Statistics, FBI identity theft, and fraud information, and data from the individual state departments of revenue; and your own client lists, with the caveat that you follow IRS guidelines on client privacy.
• Form a business intelligence team. If you are a solo practitioner, this may just be you. Otherwise, include all professionals in the firm – the more eyes reviewing the data sources, the more likely you are not to overlook information that may prove critical. Get the team together for a meeting of no longer than a half day, generally on a weekend, at a facility other than the firm’s offices.
• Develop a plan. Know in advance what you are hoping to achieve from the plan, what data you will need to meet these goals, and how the data will be used in implementing the plan.

Business intelligence based on big data is largely viewed as the purview of large, resource-rich corporations with a dedicated staff.  The reality is that many of the tools used to make more effective business analyses and decisions are readily available to small companies, including those engaged in tax preparation.  Using them is only a matter of pulling together the available data streams and gathering a team to build and implement a plan.