Drake Software blog for tax pros, covering tax, IRS news, and more

10 Secrets Of Successful Tax Prep Firms

10 Secrets Of Successful Tax Prep Firms

You’ve heard the names of the top firms in tax preparation.  The firms that have proven successful despite competition, ever-changing tax regulations, compliance requirements, and proposals for regulation and growing identity theft.

What is it that makes these firms successful when others are not?  Strong business skills are obviously the foundation for any success.  Businesses generally fail for three reasons: a lack of cash, a lack of clients, or ineffective marketing.

Beyond basic business skills, however, are a set of traits that can elevate the firm above its peers and competitors.  These are traits you can emulate in your own tax practice to become more successful.  Here’s our list of 10 planning factors to help you get started:

  1. A mission statement is important. While the purpose of the business is to generate earnings for the owners, that’s not the same as a mission statement, which defines why the organization exists.  A well-crafted mission statement explains, in one or two simple sentences, who you serve, where you serve these customers and what your services will include.  The mission statement acts as a clear explanation of the business for staff members and clients.
  2. Pick the right location. For retail services and tax preparation alike, the most important factor in success is location. It’s important to know where your clients are, and to locate the business in a place that’s convenient for them. Consider where they frequently shop, and keep in mind that most clients use a tax preparation service that’s five miles or less from their home.
  3. Pick the right clients. This hearkens back to the mission statement, and comes down to a simple recognition that you should not take every client that walks through the door.  Those who shop on price alone, those who are willing to misstate their earnings or deductions, those who can’t provide the proper documentation – all of these types of clients will be difficult to serve well.
  4. Focus on client relationships. As the head of the firm, it is important for you to meet every single client.  This reassures the client and puts your face on the firm.  You should also arrange for secure communications with clients, and be available to resolve client concerns or problems.  The client may not always be right, but is always important to your success.
  5. Create a strong set of procedures. Begin by updating your tax workflow and creating an employee handbook.  Workflow procedures will help to streamline and speed work through your system.  The employee manual will eliminate many questions that otherwise could tie up critical management time in responding to one employee at a time.  Once the internal procedures are under control, look to the external procedures for marketing the firm, including the creation of a marketing plan.
  6. Automate routine chores. Technology is not a solution for all of the problems of the firm, but making use of technology can prove more efficient to the firm’s operations, increasing profitability.  Begin by selecting tax preparation software that best meets the needs of the firm.  Follow that with workflow automation software, then turn your attention to the hardware – computers, monitors, scanners, digital signature pads and other equipment that can generate savings in time and money.
  7. Pick the right people, and work to retain them. Polls of tax and accounting firms consistently show that the top concern of owners and partners is staffing.  It is difficult to find the right people in the first place, but even more difficult to retain them once they are trained and have some experience.  Remember that tax preparation is an industry with few barriers to entry, that non-compete contracts have largely not been supported by the courts, and that staffing is both the firm’s greatest strength and its greatest weakness.
  8. Promote your professionalism. In a time of explosive fraud and attempts at regulation, it is critical for tax firms to promote their professionalism to their clients and to their communities.  Post the fact that you subscribe to a code of ethics such as those promulgated by the American Institute of CPAs or the ethical requirements of IRS Circular 230.  Post that you have a Preparer Tax Identification Number (PTIN) issued by the IRS.  Finally, make the promotion real by practicing professionalism.
  9. Control your marketing costs. If inadequate cash flow is the path to failure, marketing costs can be the easiest way to bust your budget.  It is easy to get drawn into marketing and advertising programs that chew through capital but yield only a minimal return on investment.  Proceed with caution, and test each marketing program before committing major funds.
  10. Be prepared for the worst. And the best.  Between fire, floods, hurricanes, tornadoes and winter storms, it is hard to remain in business when a disaster strikes without some advance preparation.  In addition, there are threats from ever-changing tax policies, increasing competition and free or do-it-yourself tax preparation.  Conversely, tax preparation firms should prepare for the good times, which can lull the firm into a sense of complacence.  Good years are a time to make changes, to invest in technology, to evaluate staffing and to put money away for the less fortunate years that will inevitably follow.

Not every tax preparation firm will succeed – the failure rate is little better than that for other small businesses.  But firms destined to become or remain successful follow a set of best practices that combine streamlined procedures, professionalism, preparation and a focus on clients.





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