Make the money train run year-round.
By Jassen Bowman
As we head into the home stretch of filing season, some tax practitioners are ready to just put busy season into their rearview mirror.
For many tax professionals, however, the end of filing season brings an unpleasant reality: A sudden drop in revenue.
If you have a 1040-dominant practice, you likely have a cadre of clients that you put on extension. This extends the seasonal revenue into May, of course, and likely creates another revenue bump come October. Unfortunately, that means many small firms and solo practitioners are stuck dealing with significantly reduced revenues for about six months out of the year.
If you’re sick and tired of this revenue roller coaster, and would like to maintain filing season revenue levels (or higher) on a year round basis, then it’s time for you to embrace a multi-season perspective within your business. In fact, all 1040-oriented practices can choose to divide the tax year into four distinct seasons.
February-May: I’ll assume you already have filing season covered, but I will add one potentially big thing: After April 18th, keep your productivity level fairly close to your filing season pace in order to crank through as many of your extended returns as possible. Too many practitioners wait until summer or fall to aggressively work on their extension backlog. By taking care of it now, while you’re still in ‘high output mode’ will create time and opportunity for additional profitable work later in the year.
June-September: The summer months are the peak of the 1040 tax debt resolution season. After the filing of their returns during filing season, most tax debtors will enter the IRS Collections process in June or July. The national average representation fee for an individual income tax debt is approximately 10 times the return preparation fee, making this an incredibly lucrative service to offer.
If you’ve never engaged in IRS Collections representation services, you can learn most of what you need to know to handle the vast majority of cases in just a one- or two-day tax resolution seminar. In addition, since less than 2 percent of EAs and less than 10 percent of CPAs in private practice offer such services, you can easily obtain referrals from your colleagues for additional tax resolution work simply by making it known that you are offering this specialized service.
September-October: The shortest of the four tax seasons, this is when you catch up on the late extensions. Ideally, you will have made significant progress on these returns earlier in the summer. For those taxpayers who are particularly egregious regarding not getting you documents in a timely manner, I would encourage you to impose surcharges on your clients.
For example, if a client brings you documentation after September 15, impose a penalty of some percentage of the tax preparation fee. After October 1, impose a higher percentage penalty. After October 10, make it really painful.
And those clients who are routinely harassing you on October 14 or 15, year in, year out? Fire ‘em.
November-January: While I recognize the fact that tax planning should be a year-round activity, the reality for most middle and upper-middle income Americans is that it’s a once-a-year activity.
Ideally, upsell your annual tax planning appointments earlier in the year, as part of their tax preparation fee. You can use a technique called negative option billing very easily for tax planning services. At the time they pay their return preparation bill, include either a line item or a separate invoice for tax planning services. Fully explain what it is, how they could benefit from it, and give them the choice to opt out (as opposed to opting in to buy).
To even out your cash flow for the year, consider offering to bill for tax planning in increments, such as quarterly or even monthly.
At a minimum, aim to have at least two annual tax planning appointments with your clients. By doing this at both the end of the year and the beginning of the year, you can rest assured that your clients that need it are at least taking advantage of this service at the most opportune times. Add in a mid-year appointment as part of a service plan, and you can provide high-level tax planning services to a large number of clients at reasonable fees.
Of course, also use these meetings as an opportunity to identify clients who need more frequent tax advising.
By simply breaking the year into these distinct tax seasons, you can more effectively plan your marketing campaigns prior to each season, even out your cash flow fluctuations and more accurately predict seasonal staffing needs. As a byproduct, you’ll increase client loyalty and Lifetime Client Value (LCV) by offering the most important services that your 1040 clients need, when they need them.