Threat or Opportunity as H&R Block, Liberty Jump into Bookkeeping Services?

Liberty Block logosWhat it means for independent tax and accounting firms.

By Hitendra Patil
Pransform Inc. 

The accounting profession in the U.S. has been shaken up by announcements from Liberty Tax Services and H&R Block that they are entering into core bookkeeping and accounting services business.

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The news came as a surprise to many and I had a few discussions with some accounting professionals, especially smaller firms and some solo practitioners, on what they think of this new development.

The Scope of Impact

Both of these firms are large; have nationwide presence; have existing relationships with tens of thousands of small businesses and millions of individuals; have physical office infrastructure that spans hundreds of thousands of offices (outlets, if you will) and a workforce that is centrally and systematically kept informed and trained on the various compliance and tax requirements, backed by standardized processes and systems that significantly reduce their cost per unit of productivity. And they have demonstrated investment capability to successfully implement marketing and sales programs consistently to attract new clients.

All of these are dream capabilities for smaller firms. The sheer reach of Liberty and H&R Block is hard to beat.

And they have attracted talent and new technologies to lead their foray into the backyard of thousands of accounting and tax professionals out there.

They might be price competitive compared to small firms. They might have the resources to provide faster turnaround. They might have collective leverage of several professionals to answer client questions across a wide variety of needs.

Three Key Questions:

  1. Would they be difficult to match in terms of sheer types of services they can collectively offer within and across their respective branches network?
  2. As technology increasingly commoditizes basic accounting and tax preparation work, would they be like the giant retailers that placed a low ceiling over the opportunities for the corner grocery stores?
  3. Would they be the disruption that can neither be denied nor fought?

The Million-Dollar Question: Is It a Threat or Is It an Opportunity for YOU?

They say, ride the horse in the direction that it's going. Or have the strength and power to tame the horse head-on! One more choice is to use the horsepower to move your cart!

Analogies apart, the key challenge is to understand how the move by these giants affects your business.

For example:

  1. Increased Fee Pressures: Consumers would expect them to be reasonably priced. And that could mean new fee benchmarks that can lead to at least moderate to immense fee pressures immediately.
  2. Locational Disadvantage: Their offices are more in the busier and more convenient areas for clients to access during their daily routines. Compare this to your clients' requiring special effort to reach your office by disturbing their daily routine. You may be at a locational disadvantage.
  3. Narrower Spectrum of Services: Suddenly, they will have access to many competencies that they can leverage from across their offices. Think Amazon, which delivers goods from locations closest to where you are to reduce time and cost of delivery. Comparatively, your skillsets will allow you to offer narrower spectrum of services, creating a distinct disadvantage for you in the long run.
  4. Resources Inadequacy: With their ability to pool resources across various locations, they will be able to turn around larger projects far more quickly. It might become their selling point, too. In comparison, your resources being inadequate to match such speeds of service delivery, you might see a distinct shift in the size of projects that you get, which can directly impact your revenue.
  5. Lower Profitability: The combination of factors means lower profitability in your core services offerings. Unless you figure out really higher value add, compensating this loss could be a major challenge for you.

But There is a Silver Lining, Too

  1. Liberty and Block may look for collaboration for some key competencies and hence would look to engage more franchisees, even at individual levels. In other words, the huge problem and cost of marketing of services (which small firms can’t bear due to capital and cash flow constraints) can be taken care of by these larger firms to “internally” refer clients to you.
  2. Further, as both H&R Block and Liberty would be logically expected to leverage the cloud to standardize their new service offerings, and because they are launching them nationwide, you can now start servicing clients from anywhere, thereby mitigating your locational disadvantage.
  3. It is likely that several consulting opportunities will emerge from the new engagements that these firms will have with their clients and instead of hiring high-cost-high-value pros, these firms might enter into strategic alliances with competent consultants – just like you!

10 Responses to “Threat or Opportunity as H&R Block, Liberty Jump into Bookkeeping Services?”

  1. Frank Stitely

    I wonder if they are headed back to the days of doing rollups – as was tried with tax prep years ago – only this time with bookkeeping firms. The tax rollups didn’t fare so well, and bookkeeping is a notoriously unstructured type of service. So I don’t see much possibility of their success.

  2. Dean Allan

    What a wonderful opportunity for bookkeepers to start working with their local H&R Block or Liberty branch on a sub-contracted basis to provide bookkeeping services for them.

    Let’s think about this objectively for a minute – I am based in Australia and I am unaware of Liberty Tax Services here, but there are H&R Block offices located all around Australia, so I will focus on H&R Block in this example as I am familiar with their services.

    If H&R Block has decided to branch into bookkeeping services to compliment their accounting service it means that they are chasing more market share in the accounting arena by providing an “add-on” service (bookkeeping).

    Now, the H&R Block offices that I have dealt with in the past are usually small, local offices, with a couple of Accountants providing tax return services and one or two office staff providing support/administration services to the Accountants.

    One would assume that if they start providing bookkeeping services it will be the support staff that collate client’s data to hand over to the accountants who will then complete the tax returns.

    This raises the age old problem that all bookkeepers face – the support staff are limited to the number of records they can process based on how many hours a day they can find to carry out bookkeeping services.

    So, what does the H&R Block office do – employ more support staff and face the added overheads associated with employing new staff, or start looking for local bookkeepers to help them on a contracted basis with the increased workload?

    If I was a bookkeeper in the U.S. I would be arranging to take my local H&R Block and Liberty Tax Service business owner out for a coffee as soon as possible because I think there is a wonderful opportunity to increase, not lose business, with this announcement.

    • Hitendra R. Patil

      Thats an awesome perspective Dean! Thanks for sharing your thoughts! You have given a food for thought to Block and Liberty strategy makers. Thanks again.

    • Susan Colley

      Since I am busy amending returns incorrectly filed by employees of H&R Block I am not terribly worried about the competition if they enter the bookkeeping arena.

  3. Katrina Geety

    I have mixed thoughts. H&R and Liberty performing bookkeeping and accounting work may be related to the preparation of Schedule C, an annual task for the small sole proprietor or disregard entity (single owner LLC). I am not sure if they are issuing “compiled” financial statements per AICPA standards. They are trying to grow their CPA base. I get letters often. My thoughts are that they have been doing this and just decided to market it and gain a lot of publicity from the friction they create in the marketplace.

    Organizations such as the AICPA, NATP, NAEA and others need to show a cost comparison of the final preparation cost of a return. I have seen easy returns that were charged over $300 including all fees, insurance, etc. From communicating with many small accounting and tax practice firms, the chain tax preparation firms are more expensive that smaller licensed firms. We need to stay focused on servicing our clients, providing great value and you will have clients for life.

    You will notice that I am not criticizing the expertise of chain tax preparation firms because I have meet several H&R professionals in discussion groups that are very knowledgeable. They are, however, a very small percentage of their workforce, in my opinion. Unlike the small licensed firms that have a high percentage of CPAs and EAs.

    Thanks for the post, Hitendra! It is a lot to consider.

    • Hitendra R. Patil

      Thanks for sharing your thoughts Katrina! One more question to ponder over is what will stop clients from asking for good quality other services when they go into these offices and see that more of their need will get fulfilled?

      • Katrina Geety

        If HRB and other’s existing customers wanted or needed these services, they would have asked for them before…the schedule C or E. That’s why I think this is a marketing ploy. But I think it should make all of us licensed preparers and their supporting organizations show that these are services that we perform that need to be marketed as a product that we currently charge at a lower price than they charge. And you can talk to the same preparer year round, each year. And the marketing pitch continues.

  4. Wesley Middleton

    This is an attempt to move away from the 1040 practice which I have always said is a dying practice. The basic 1040 will eventually go away. The IRS can prep 75% + of the returns filed today with existing info from reported tax forms. The quality from these firms will not match CPA firm quality. Do a great job, add value, and you will have nothing to worry about. This is an opportunity to highlight quality. The only person who has something to worry about are those that are only focused on price.

    • Hitendra R. Patil

      Wesley: Thanks for taking the time to share your thoughts. Commoditized goods and services always get consumed by competition. You are on the button when you say that “this is the opportunity to highlight quality”. Well said! The challenge though would be how to measurably describe “quality” as it is more of an abstract thing.

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