By Kyle Walters
From the CPA’s perspective, a completed tax return is a summary of all the hard work that you have done on behalf of your client. The return represents a mountain of paperwork that you have tamed – everything you had to evaluate, research and consider in order to complete the often-complex process of preparing and filing a U.S. tax return.
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However, when you deliver a tax return to your client, the final return seems like nothing more than a huge pile of paper in the client’s eyes. Other than seeing how much they owe in taxes, most clients don’t know what to do with all the information on their return because they don’t understand IRS-speak. They don’t understand the implications of the numbers contained in the nice neat rows and columns.
You may have built a dashboard with key performance indicators (KPIs) for your clients so they can better understand their financial situation and so you can better demonstrate the value you are providing them. That’s great. But if you keep trying to explain your dashboard and metrics to clients and they’re simply not getting it, then you’re just creating more work for yourself and for your clients.
Dashboards and KPIs are part of CPA-speak. Those terms and concepts are not intuitive to clients. All your clients want to know is whether they are on track to reach their personal financial and business goals. And if they are not on track, they want to know ASAP what they need to do to get back on track. Clients want to know how they can keep nagging concerns from becoming costly mistakes.
Instead of creating complex tools for explaining a complicated tax return, create something that’s simple and user-friendly. Create something that clients understand and that allows you to provide the kind of advice that your clients are looking for. It doesn’t have to be an elaborate presentation. You can create this financial snapshot on a single page, with plenty of room to show your client the value you have created for them over the years.
Now, imagine a single tax return with a single page on the top that contains three sections:
It’s just like the stoplights at an intersection! It’s intuitive and simple.
- RED issues are at the top of the page. These are big concerns based on what you know about your client’s situation and their goals. For example, many of our clients are very concerned about lawsuits and about protecting their assets from being unjustly taken. Maybe they own everything in their own name and they don’t have an umbrella policy. That’s an example of a red flag that’s identifiable, changeable and in line with their key objectives. These are issues that need to be addressed quickly by your clients. The red section is where you let your clients know what steps to take in order to resolve these issues.
- YELLOW issues are where you find caution points. This is where you indicate things in your client’s financial life that may be trending in the wrong direction. For example, maybe your client has a revolving line of credit that’s way too high. You and your client need to keep an eye on that line. Is this the right debt structure for your client’s business and their family? The yellow section is where you let your client know what to do to keep these issues from becoming red. It’s where you indicate things that you are monitoring in order to keep these issues from moving in the wrong direction.
- The GREEN section is where you highlight things that are going great in the client’s financial life, year over year. For instance, maybe their business income has shown steady growth year over year. Great! Their income and cash flow is stable and they are growing their business. Congratulate your client for doing a great job and encourage him or her to keep up the good work. You would also note in this section things in the client’s financial life that you moved from yellow to green. Again, that’s a chance to reinforce the value you are providing.
Clients inherently understand what the different colors mean because it’s a language they have understood since they were kids – or at least licensed drivers. You don’t have to explain it or teach it. You don’t have to buy or create additional tools to implement the red/yellow/green system. It is simple and effective for both your practice and your clients.
As a CPA, your job is to turn red issues into yellow and yellow issues into green. Then your job is to track what you're moving from red to green over time. It’s a simple and intuitive exercise that shows positive progress and that you’re making life easier for your clients. If you just add that one red/yellow/green page to a client’s tax return, then you are starting to provide valuable and long-lasting advice.
In five years, clients aren’t going to remember what you did for them. But the red/yellow/green scorecard is a great reminder that allows you to keep track of the things you turned to green over time. If you keep track of all the things in a client’s financial life that you’ve been moving down the stoplight, after a few years you can now show your client all the successful things you’ve done to minimize the red and help the yellow.
This red/yellow/green scorecard is also very useful for getting your team (and any outside experts you bring in) up to speed on the client’s key issues and concerns. To maximize the effectiveness of your red/yellow/green scorecard consider the following:
- Keep it simple.
- Keep track of all the wins you’ve had for your client.
- Keep track of what your client needs to focus on.
- Get everyone on the same page.
The red/yellow/green scorecard is also a great referral tool because it’s very easy for your clients to show the scorecard you created for them to their friends.