SURVEY: How Tax Pracs Battle New Fee Pressures

Competitors vie for clients on price and promises.

By Rick Telberg
CPA Trendlines

While the tax prep market is rife this year with competitive lowballing, many seasoned and established professionals are fighting back with grit and guile.

Mostly, they still expect to improve upon last year’s results, but it won’t always be easy. And last year was so awful that many had expected 2014 to be a cakewalk. Well, it’s not the cakewalk many expected.

CPA TRENDLINES BUSY SEASON BAROMETER SURVEY FINDINGS:
Tax Season Price Wars: Accountants scramble as competition surges for bread-and-butter tax work.
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A nine-partner firm with three offices stretching from Vermont to Arizona is feeling the heat on fees from competing firms. “While we don’t want to lower fees to a break-even scenario,” says one partner, “we are lowering fees where needed if we believe the client will be long-term.” The partner also voices “concerns with obtaining qualified experienced staff, resulting in some of our staff work being done by top-level management. This is driving our profit per client down.”

A few are able to shed their low-margin clients and take on more profitable ones. A solo CPA in Plano, Texas, for example, is “doing more complex business returns and more bookkeeping.” He’s “taking on less clients, charging more, but focusing on customer service.”

In Dallas, on the other hand, Paula Allgood, one of nine shareholders at Beaird Harris, is looking at a tougher season this year. She says the firm has “increased staffing costs generally in the 5-10% range, but fees are increasing by only 3% this year.”

Ray Nations, a leadership figure in the Virginia Society of Enrolled Agents, is also looking at some setbacks this year, and pricing pressures aren’t helping. “Clients are either using on-line software themselves or are going to their friends, or coworkers or neighbors who have an online software program, and they claim to be an expert.'”

Carl McGookey, president and managing partner at Payne Nickles & Co. in Sandusky, Ohio, expects overall “client count to be up this busy season but not much revenue growth on existing clients.” While he’s now expecting a “significant increase in economic activity in our area,” the firm is “using more social media and working hard to let clients know of tax law changes in Ohio that we have used to their benefit.”

After almost 20 years of practice, Toni Frazier In Chillicothe, Ohio, sees clients drifting off to do their own taxes – but not necessarily just to save money on her fee. “I know their motive for doing so is that I am honest and I am sure they are not being as forthcoming on their self-prepared returns.”

In Galt, Calif., QuickBooks ProAdvisor Beth Symons sees a lot of shoddy work by low-priced tax mills. “They crank out forms without knowing what they represent.” It’s been taking a toll on her business this year. So she’s marketing her “service and expertise.”

In San Diego, enrolled agent Connie Moore, one of the two owners at Mallett and Barnes Tax Service, has lost some business. “Since the IRS didn’t allow e-filing until February, we lost a lot of clients that had the earned income credit. They went to the IRS website and filed themselves.” She says clients are getting so price-sensitive, she’s offering deep discounts for new client referrals.

At Bayside Financial Services, Nicole Baldner is battling against a downturn in business by streamlining operations. The firm is going increasingly digital – sending completed returns to clients in PDF form, and taking in more client data through their website, email, scanning or memory sticks.

They’re also using a new smartphone app backed by the National Association of Tax Professionals called TaxPocket. The NATP, working with a developer, rolled out the app for $97 a year to tax professionals and made it free for clients.

In Springfield, Ill., a solo CPA tells us she is “raising prices to cover the increase in costs.” But it’s a tough sell on clients. “While our technology costs are skyrocketing,” she says, “clients can’t see the value. If anything, they assume our costs are lower.” She may be holding her own against last year, but “costs are going up and revenues and profit margins are going down.”

At Rediger & Co. in Lincoln, Neb., CPA Scott Rediger says his practice is performing somewhat better than last year and, despite fee pressures and staffing issues, is holding the line on prices. “We’re keeping fees competitive,” he says, resigned to losing “a few lower-end tax returns, but replacing them with higher-fee returns.” In addition to the tax practice, Rediger offers financial services and includes a number of professional athletes among its book of business. With some expense reductions, he’s expecting an overall more profitable year.

In Honolulu, a solo CPA is facing down pricing and fee pressures with “Web advertising, additional staff and staff rate increases along with salaries.” So far, he’s holding his own against year-ago comparisons. “I still believe in the American dream and I’m sure I am not alone.”

“My superiors do not want to hear about economic and job conditions,” says a frustrated enrolled agent, working as a mid-level staffer at a large office in Florida. “There is more self-preparation by people and pushback on charges.” He’s grappling with a “somewhat worse” season this year, bedeviled by tough competition, confused clients and not enough help.

In Illinois, another staffer at a large firm says, “We have increased our billing rates, which will increase revenue on a receivables basis, but efficiency is difficult and the actual billings won’t reflect the income accrued in work in progress revenues.” Bogged down in sluggish workflow processes, he says he’s “working in conditions with constant interruptions and redirections, so that I can’t feel efficient or successful.”

In Houston, David A. Grossman, a founding shareholder of five-partner GBH CPAs, is also dealing with billing rates. But, he says, the firm has “focused more on the marketing and sales processes by hiring outside consultants.”

In Woodbridge, N.J., Green Group managing partner Ralph Anderson attributes a “somewhat better” season so far to “more use of social networking on all platforms. I hired a social networking director in addition to our marketing director.” The firm has also been upgrading its client list, making “better use of technology, monitoring costs, and entering other niches and services.”

A five-office, two-owner firm in North Carolina is facing its own fee pressures without a blink. “We are raising fees across the board 4% to 5%,” says one of the partners. “Although the economy seems stuck, the number of prospects we are working with has increased significantly,” he says. “Prospects are looking for more than just tax and accounting, they want help in running a better business. We’re retraining ourselves to be business advisors, not just tax advisors, and to be proactive with A and B clients.” As a result, “several revenue projects are scheduled after tax season, which will increase profitability.”

“And,” he goes on, “we are better and more efficient at what we do. Times to complete returns are down.” So when they lost a 1040 preparer at the start of the season, they turned to a backup plan outsourcing the work to SurePrep. “So far so good,” he says. “The cost of SurePrep has been equal to or less than the cost of our preparer – no bottlenecks yet.” The firm is also launching a client satisfaction survey program. “After every engagement, for which we have a 7216 consent, we communicate with clients to survey how good a job we are doing. Poor responses to the survey will justify a call to the client and an opportunity to raise service levels to keep the client. I see this as a marketing opportunity.”

So far running even with last year, Fank Agrusa at the four-partner Davis Spinel in Bristol, Pa., is also grappling with pricing competition. The firm, however, has deployed strategies including more frequent client contact.

Meanwhile, in Lower Gwynedd, Pa., Lawrence “Law” Towsey  at The Sierchio Financial Group, an H.D. Vest rep, and a spin-off of Sierchio and Towsey CPAs, notes the “economy is going nowhere and clients are feeling the pinch.” In order to manage margins, the firm, which recently closed on a merger, is “adopting a more systemic approach to the workflow.”

If the client won’t come to the firm, in California there’s a staffer who will take the firm to the client. He brings his laptop out to meet clients, processes returns online while they wait and takes credit card payments before leaving. Still, labor costs and office expenses have been rising stubbornly, even as the number of clients remains unchanged.

Bethany D. Bowline in Muskogee, Okla., is battling some headwinds. But it may only be temporary. She’s managed to raise rates and gain new clients, but “We don’t have enough experienced staff to satisfy demand.” But with several longtime competitors retiring this year, she expects next year to be better. And “I won’t have to do much to remain competitive.”

In Silver Spring, Md., Clifton Jeter can’t afford to worry about price pressure. “Costs are increasing and charges must increase also. But he’s “keeping the increases low and explaining to clients why the increases are needed.” The good news is that the worst of the recession may be over for his clients. “I don’t see any real changes in the economy that would spark more concern with my client base.”

In Cedar Lake, Ind., Nancyjean Wagar, RTRP, is having a rough time. Her client base of “low-income to middle-class people just don’t have enough income to balance out the expense increases.” Her clients are using free e-filing online or turning to TurboTax, causing her to worry that they may be cutting corners and putting themselves at risk. At the same time, she needs to remain mindful of the pricing at the local H&R Block and Jackson Hewitt offices.

In Ordway, Colo., Deborah Shrader, RTRP, at D & D Accounting and Consulting, is benefiting from some selective price increases and the retirements of a few local competitors. So she’s upgrading office procedures and hiring more staff. But tax season is still a lot of hard work. “At lunch time I always leave my building, even if it’s for a 10-minute walk,” she says, “and I try not to think of the Broncos Super Bowl disaster.”

In Clearwater, Fla., Kathy Cormier at Cormier & Rabb is enjoying a much better year than last year. In part, she credits switching from ATX to Lacerte. “We are almost paperless now. We scan client documents and preparer notes.” But some things still demand old-fashioned ways. “We put an orange file card into the client doc file on the to-do shelf as a visual cue that there is data missing for this client.” Of course, it’s all tracked on their scheduler software, but the physical card helps see it at a glance. “Considering the economy overall, we see our clients doing better and feeling more positive,” so Cormier is “reviewing pricing to gain better profits per client.”

Reporting improvements over last year, CPA Sam White in Greensburg, Pa., says he “will increase fees and try to finalize extension clients sooner.” But competition, rising costs, cranky clients and tardy K1s may not be his biggest problem. His “82-year-old mother-in-law with some health issues is staying at my house more than her apartment.” His trick for getting through tax season? “Red wine.”

 

Posted on March 6, 2014