Workflow for Dummies

Exhausted man rubbing his eyes under glassesSo you can quickly tell when a delay is the client's fault. Plus: The 12-step tax return and 8-step writeup workflows.

By Frank Stitely
The Relentless CPA

Let’s play buzzword bingo. I’ll go first: workflow.

MORE: What Goes Into a Client Project? | Tammy’s Tale of Tax Season Tardiness | Beware the Leeches and Consultants | The Value-Pricing Con Job | The 21st-Century CPA Firm | Ruthlessly Efficient Workflow Management
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Workflow is the CPA firm buzzword of the decade. Every vendor leech trying to suck the life out of your bank account drops this term, and in so doing, workflow now means everything and nothing at all. Marketers have so devalued the term that we shouldn’t be surprised that no one has an effective workflow, because no one knows what it is. Let’s flush the confusion.

Workflow is not scanning and import software. Workflow is not workpaper binder software. Workflow is not a portal or tax return preparation software. Workflow is not project management software, much as it pains me to so state. These are no more workflow than a hammer is real estate development. They are tools to accomplish workflow.

Workflow is the steps necessary to complete a project. It’s that simple. Workflow is entirely separate from the tools used to accomplish it. You and I might use different tax software but have nearly identical workflow processes. For our purposes, we can equate workflow with project steps or statuses.

Workflow is defined on a project type by project type basis. For instance, we will have one workflow process for individual tax returns, but a different method for compiled financial statements. Let’s clarify the concept of workflow with a real example.

We’ll document our workflow steps for individual tax returns. Start by remembering that projects have four necessary steps or statuses:

  1. Not started
  2. We are working on it
  3. The client is working on it
  4. Done

All of our workflow steps are subdivisions of these four statuses. Let’s flesh out how an individual tax return flows through our system. Your process is likely pretty similar.

Most CPA firm staff suffer from a common misconception about the first step for every tax return – the stage where they agonize for an hour, staring blankly at the computer screen not knowing how to get started. The removal of this unnecessary step is my most significant contribution to the theory of tax return preparation. I teach staff that you start a tax return by moving your hands. You don’t prepare returns by staring at a screen or getting the eighth cup of coffee. If your hands aren’t moving, the return isn’t getting prepared. Those numbers aren’t going to miracle themselves into the computer.

Our individual tax preparation workflow process goes like this:

  1. Wait on documents from the client. (Not started.)
  2. Scan tax return documents. (We are working on it.)
  3. Enter data and create questions and missing documents list for the client. (We are working on it.)
  4. Send questions and the missing documents list to the client. (Client is working on it.)
  5. Enter answers to questions and remaining data. (We are working on it.)
  6. Review return. (We are working on it.)
  7. Address review notes. (We are working on it.)
  8. Send draft to the client. (Client is working on it.)
  9. Assemble return and deliver to the client. (We are working on it.)
  10. Wait for the client to return signed 8879 forms. (Client is working on it.)
  11. E-file returns. (We are working on it.)
  12. Wait for e-file acceptance. (We are working on it.)
  13. Done.

You might be surprised that we have as many as 13 steps to complete an individual income tax return. Now you know why so many returns get lost in the process during tax season without effective project management. Tax returns hide in a lot of places.

Without effective project management, here’s how the client calls about status are handled.

  1. You get a panicked client phone call. The client says something brilliant like, “Don’t you know that April 15th is the due date?” You think the return was started two weeks ago.
  2. You tell the client that you’ll get back to him because you have no idea who has the return let alone the status. You don’t tell him the “no idea” part.
  3. You run down the hall shouting, “Who has the Edwards return?” Of course, half of your office is at lunch, so you still don’t know.
  4. You run from office to office, looking in vain for the project folder and hoping you can figure out what’s left to be done.
  5. You call the client and promise the return will be done by tomorrow. “Tomorrow. Tomorrow. I love you, tomorrow. You’re always a day away.” Now you’re Little Orphan Annie.
  6. You miss getting a lunch break waiting for your staff to return, eventually telling the return preparer that the Edwards return is her top priority, unwittingly bumping back the preparation of your best client’s returns.

With effective project management and well-defined workflow, here’s what happens when a client calls about status.

  1. You get a panicked client phone call. The return has only been in process for three days. You know this from your project management system. He says, “Don’t you know that April 15th is the due date?” As comedian Ron White jokes, “You can’t fix stupid.” Even effective project management can’t.
  2. You look up the status of the return in your project management system.
  3. While on the phone with the client, you tell him that you sent him questions yesterday and are waiting for him to tell you that his business mileage was the same as last year and that thousand-dollar receipt from the Vegas strip joint was an ordinary and necessary business expense. You know the IRS rule on strip clubs. They are deductible only if the CPA was invited.

Workflow steps for corporate tax returns mirror the personal tax return steps pretty closely for us. They don’t have to for you. You may decide that entering the income statement and balance sheet are separate steps. Defining workflow is about you.

Let’s look at a recurring service such as monthly bookkeeping or writeup.

These workflow steps are a good start:

  1. Wait on documents from the client. (Not started.)
  2. Prepare workpapers and questions list for the client. (We are working on it.)
  3. Questions sent to the client. (The client is working on it.)
  4. Complete financial statements. (We are working on it.)
  5. Review financial statements. (We are working on it.)
  6. Address review items. (We are working on it.)
  7. Deliver financial statements to the client. (We are working on it.)
  8. Create a project for the following month. (We are working on it.)
  9. Done.

You might ask why we have separate steps for reviewing the financial statements and fixing the review items. Simply, these steps are probably completed by different people. If they aren’t, you may not need the separate steps. We are creating workflow steps with the idea that we will be assigning a staff member to each step. That way, we know whose throat to choke if the project falls behind schedule.

Step eight reminds us to create the project for the next month because this is a recurring project. I recommend separate projects for each month of recurring service. You then have historical records of the performance of each month separately. For instance, you’ll know if July’s project was two weeks late, but all of the other months were on time.

We haven’t discussed the importance of tracking workflow step completion dates yet. Documenting completion dates gives you a weapon to battle client claims that you were late completing work and caused penalties.

How many times have clients backed you up against deadlines by not answering questions on a timely basis? If you’ve been in business for a few years, I’ll guess a few hundred times. If you know when you asked the client questions versus when he answered the questions, the debate over who’s paying the penalties ends.

One of the main issues we face with e-filing is getting signed 8879 forms. When you have the date you delivered the return versus the date the client returned the signed 8879 form, you’ll pay no more penalties, because you have hard data to prove responsibility. Of course, someone will still tell you they didn’t know what to do with the forms. So you respond, “I’m sorry. We wrote the instructions in 3rd grade-level English. Was that not the correct language?”

I love clients who tell us they didn’t know what to do, so they did nothing – for six months.

Keep your workflow steps simple. Don’t get lost in the weeds trying to take into account every situation that can occur with a type of project. What ifs are not a part of your workflow process. Accommodating all the what-ifs turns workflow into workstop.

Your job as CEO is eliminating the what ifs. Complexity is the enemy of effective project management.

Let’s look at an example in which you might be tempted to add complexity to workflow steps. What if the IRS or a state rejects an e-filed return? Adding a step or steps to handle rejections tempts project management newbies. Here is their first impression of how rejections should be handled:

  1. Waiting on acceptance. (This is the existing status from above.)
  2. E-file rejected. (This begs the question of federal or state or both.)
  3. Sent back to the preparer for resolution.
  4. E-filed again and waiting for acceptance.

This looks simple enough once you get past the idea of adding one-quarter more steps to our process to handle something that happens about 1 percent of the time. But what happens if the federal is accepted and four of eight state returns are rejected? What happens if the return is retransmitted and is rejected again? Do we need another four steps to handle second rejections? How many potential rejections do we build into our workflow steps?

The correct answer is zero. Don’t build in additional steps for exceptions. We need a procedure to handle them that is not part of normal workflow. Not every procedure becomes a part of a workflow.

Here’s how we handle e-file rejections.

  1. The status in our project management system remains waiting on acceptance, because that’s a fact, Jack. We are waiting on acceptance while the return is in rejected status.
  2. Every day our admin staff reviews all the returns waiting on acceptance.
  3. Any accepted returns get moved to the “done” step. Woo-hoo!
  4. Any rejected returns are referred to preparers to be fixed within 24 hours and retransmitted.
  5. The next day admin repeats the cycle. Lather, rinse, repeat.

Rejected returns don’t get lost in the system, because they are reviewed daily until they are either accepted or we give up and paper file them. We added zero additional workflow steps to handle rejections. We don’t need four or more additional workflow steps for 2,000 returns to accommodate something that rarely happens.

At first, your staff will whine endlessly about the need to build exceptions into your workflow, especially the longest tenured staff. They’ll argue for creating a new workflow step for all 2,000 of your tax returns to prevent a situation that happened once 20 years ago.

Imagine the time wasted performing a step that requires two minutes 2,000 times during tax season to prevent something that has a .01 percent chance of happening. That’s roughly 67 hours of wasted time. That’s 30 tax returns that don’t get done and are put on extension. That’s 30 angry clients who are all going to call you on April 15th.

Load the Glock and say, “No thank you.”

Let’s open up a spreadsheet and define workflow steps for a number of project types. For simplicity, create a separate worksheet page for each project type because they may all have different workflow steps. You should have something that resembles the illustration below for each project type.


These worksheets look like a magnificent step toward effective project management because they are. You now have the ability to track statuses of projects by project type. Indulge in an adult beverage of your choice. You earned it.

What’s wrong with our little project management spreadsheet? Our project types are all on separate pages. Looking at project statuses firmwide remains difficult. Seeing staff workloads across all project types remains difficult at best.

Yes, we could add some conditional formatting to the status column based on project type and just have one worksheet. But at this point, consider using project management software to get other features such as due date tracking, automated drafting of questions, review note tracking, automated client communications and more.

Your assignment, should you decide to join the 21st century, is to define your workflow steps for your project types.

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