Seasonal fluctuations in tax preparation services create a challenging landscape for tax firms striving to achieve steady growth and scalability. As these firms primarily focus on tax-related services, their revenue stream ebbs and flows with the tax season. This inconsistency presents a major hurdle in their path to effectively scale up and maintain continuous growth.
A McKinsey report reveals that about 51% of businesses that launched themselves in the last decade can not scale. They either barely manage to sustain themselves or just die off. While this is a scenario for most businesses, service-based industries like accounting and taxation have it harder.
Tax firms aiming to grow often focus on getting more bookkeeping clients or start offering these services to new clients if they haven't been doing so already. Bookkeeping is a year-round accounting service that all businesses need. The accounting and tax industry is very competitive, so doing more is key to staying ahead. Small tax firms can often attract more clients and create stronger client relationships by adding bookkeeping services to their offerings. In this article, we'll tackle the benefits of offering bookkeeping services for small tax firms.
Recurring revenue: Unlike tax-based services, clients need bookkeeping services regularly, which helps tax firms generate monthly revenue. Providing comprehensive accounting and tax solutions helps clients keep a steady income flow, maintain long-term relationships with the clients, and ensure stability. Stability is a key aspect for small firms as it helps them remain afloat and prepared for not-so-favorable circumstances.
Bookkeeping also helps the firms understand the nuances of the client’s business in great detail, helping them build a relationship of trust. This also helps make way for leveraging advisory services. When a firm handles multiple responsibilities, clients trust their judgment and leverage their expertise. Expanding offerings continuously is one true way to gain profits, while fostering a long-lasting relationship.
Ease of scaling: Accounting and bookkeeping are in demand across all industries. All businesses want to be in the best of financial health and hence, they seek services of the professionals around the year. If your client who seeks tax services gets bookkeeping services in the same place, the chances are they would make complete use of it. Bookkeeping professionals are easy to find and hence, tax firms do not need to go out of their way to find resources. By using technology, software, and automation, tax firms can simplify the process further.
Adding services like bookkeeping helps tax firms add a predictable revenue stream, making the decision for expenditure and investment easier. As tax firms decide to venture into accounting offerings, there is a vast market to tap and ample opportunities to expand. Just like in tax-based offerings, it is key to maintain a high level of accuracy, quality, and compliance.
Less risk: While providing tax-based services, firms must abide by the strict regulations laid out by AICPA and IRS. When it comes to bookkeeping, although certain laws need to be followed, they face lesser scrutiny. There are fewer chances of clashes and just general compliance serves the purpose. The difference lies in the specialized nature of tax and audit services, which involves complex regulations. Maintaining accurate financial records and balancing the ledgers often do not carry the same level of regulatory burden or legal consequences.
Higher fees from higher client dependencies: As you continue to grow your portfolio in terms of service offerings, you get a chance to collaborate better. This essentially means you understand the client’s business better than any competitor ever will. When a firm works closely with a client, especially for tasks like bookkeeping, you understand their needs and can deliver great quality of service, the clients tend to stick by the firm. Clients understand the value that the tax firms bring to the table and often agree to pay more for better services.
Besides allowing the firm to increase their prices when the time is right, this also enables client retention for a long time.
Leverage technology: Some of the most commonly used software for bookkeeping include QuickBooks, Xero, Zoho, NetSuite, etc. Most of these software are easy to use, affordable, and can be easily adapted. By using automation technology, small tax firms can seamlessly integrate bookkeeping into their jobs. These platforms enable real-time collaboration, help secure data storage, get rid of a lot of manual bookkeeping jobs, and make task completion easier and faster. In most cases, this software used for bookkeeping can be integrated with CRMs that you might use for other purposes.
Scale your staffing: Modern-day workforce look for overall flexibility in their day-to-day jobs. With the boomer accountants moving out of the workforce, it is essential to build systems that allow flexibility. Remote working can not only help in getting access to a huge talent pool but also ensure that you get access to resources during peak seasons. Make sure that you cross-train your tax team in various aspects of bookkeeping, which will remove the burden of allocating a new generation of workforce.
Outsourcing is another great solution to handle the sudden increase in workload and to deal with the attrition rate. This is cost-effective, saves time, and allows the small firm to take on more tasks.
Client communications: Before you start your bookkeeping services, make sure to conduct market research to understand if that is what your clients need. Make sure to communicate your plans clearly so that they are clear on the new offerings, the expectations, and the tasks and deadlines. Also, make sure to outline the pricing structure and let them know if you can provide cumulative pricing for all the services you provide - tax, bookkeeping, advisory, etc. Make sure to stay in touch with the clients regularly through different channels of communication.
Small tax firms deal with a lot of challenges that prevent them from scaling. With the right outsource partner, such firms can easily expand their horizons, without spending more on hiring or infrastructure, and get access to their expertise. With an outsourcing partnership, tax firms also do not have to take the additional burden of training and investing in newer technology. All they must do is equip the outsource team with the right knowledge, means, and training.