The stars have aligned for firms ready to shift client services from a singular focus on tax preparation and compliance work to leading with planning and advisory services. Tax reform, technology automation, a growing economy and clients seeking greater financial insights have cleared a path for tax professionals to flex their financial acumen through advisory services.
The AICPA and industry thought leaders have long predicted that advisory services will automate more of the compliance work. As this happens, successful firms will deliver more advisory services, such as tax planning, financial planning, budgeting, wealth management and CFO services; however, most firms have been slow to lead with advisory services.
In a June 2018 survey of Intuit® tax pros, only 27 percent of respondents said they were engaged in active tax planning with business clients, while 52 percent were still trying to understand the changes to the tax law. Only 10 percent were leading with tax planning and advisory services beyond tax planning. So why change now? Intuit’s CEO Brad Smith likes to say, “The best time to replace the roof is when the sun is shining.”
The recent tax cuts and a strong economy are contributing to a record high in business and consumer optimism. Incomes are rising, and taxpayers want to keep more of their paycheck. Tax reform is a national conversation, which naturally creates an opportunity to lead with tax planning. Clients value planning services that reduce tax liabilities more than tax preparation, which is required, but not necessarily desired. And that is why the “sun is shining” for tax planning services.
Even when firms commit to focus more on tax planning and advisory services, they often don’t know where to begin. Leading firms that have made the transition have three things in common. They:
- Lead with tax planning
- Create an advisory workflow
- Deliver bundled services
Lead with Tax Planning
When we ask tax pros if they offer tax planning, most reply, “Of course.” When we ask if clients know how much the firm saved them in taxes in the prior year, the responses are almost always “Uh, no.” If clients don’t know how much you’ve saved them, they may simply be paying for tax preparation. The comparative pricing anchor is what everyone else charges for preparation. Leading firms aren’t billing for preparation. Instead, they’re focusing on tax strategies that deliver quantifiable savings, and documenting those savings in writing. Advisors communicate the savings annually and often cumulatively. Their clients say, “If my pro can save me $10,000 in taxes, I would gladly pay them $5,000 because I’m still ahead.” That is a radically different value proposition than the $457 average fee paid for preparation of an individual’s annual Schedule C. Successful firms lead with tax planning, not tax preparation, as tax planning often starbursts into additional and more profitable advisory services.
Create an Advisory Workflow
Leading firms often create an advisory workflow that supports proactive tax planning. These firms leverage cloud technology to automate bookkeeping and reporting, collaborating with clients in powerful new ways. This eliminates wasted time for firms and clients. Automation creates capacity throughout the firm by eliminating administrative work; smoothing tax season spikes; and ultimately expanding revenue through higher-value services than tax preparation. Creating this cloud workflow requires training, changes in workflow, and most of all, a willingness to change mindsets. It isn’t quick or easy, but leading firms are making the investment in people and training critical to achieving competitive advantage.
Firms that are embracing QuickBooks® Online Accountant (QBOA) as a platform to engage with clients are expanding their services to include cash flow management, budgeting and CFO services. At the same time, these firms are eliminating productivity killers such as exchanging QuickBooks Desktop files and cleaning up prior-year books. QBO automates data entry and categorization with bank feeds and artificial intelligence, which increases capacity for the firm to deliver advisory services instead of bookkeeping. For example, many firms are replacing the monthly compilation report, which yields little financial insights for clients, with monthly video meetings where advisors review the QBO reports with owners that lead to actionable insights.
Deliver Bundled Services
Leading firms update their business models to align with clients’ expectations, and leverage automated billing processes to eliminate billing work. For individual clients, these firms often offer three packages of bundled services, which include higher fees and clearly communicate value beyond tax return preparation. As an additional benefit, they get paid before e-filing instead of invoicing after the fact.
For business clients, leading firms offer three packages of bundled services at fixed monthly fees that provide clients with a range of advisory services to help them achieve their goals. Compliance work is foundational, not the value proposition. These packages provide clients with choices, setting clear boundaries to prevent scope creep. The subscription billing to the client aligns and is supported by the QBO subscription and keeps the client more engaged with the firm. The business model changes help eliminate a singular annual transaction where the client disappears for a year and then brings in terrible books to clean up during tax season, which creates capacity in the firm and paves the way for additional advisory services.
Leading with tax planning and advisory services is a mindset shift, not just a matter of understanding tax law changes. Once tax pros commit to this new direction, they will look back and say, “I would never go back to the old way.” We have yet to meet a firm that leads with advisory that would ever go back to the old way.
If you’re ready to begin leading with tax planning and advisory services, start your journey today with your personalized guide to becoming a tax practice of the future.