Are you are a CPA? Are you trying to build up a CPA or a tax and accounting firm? Are you highly organized?
If you answered yes to any of these questions, this video’s for you. I’m going to explain to you at its core, how you can genuinely build a business that works, draws in clients over time, dominates the search engine result pages, but most of all, is incredibly profitable.
I’ve divided my instructional story into four key parts:
– Starting a Tax or CPA Firm
– Deciding Business Strategies – The Hedgehog Concept
– Tax Mitigation
– Value Propositions
If you hate reading, don’t worry! Simply watch this video
Starting a Tax or CPA Firm
If you start doing the math on how many tax returns you’re gonna have to do to be profitable, you’ll probably decide a tax firm is a bad idea.
$500 Average Tax Return – that’s 60 Tax Returns to earn $30,000
That’s 60 appointments, 60 nagging reminding emails and letters, and the logistics of the whole mess.
I think it’s a losing game even at $500 a tax return, and I bet your local guy down the street has a much lower average when every return is taken into consideration.
I don’t think you should start a tax firm, I think you should be an outsourced accountant instead, let me explain in a minute.
Before I built our accounting firm, I spent a year as a retirement planner and insurance sales person at Thrivent Financial and Mass Mutual. My time there showed me some possiblities, so I set out with one of my best friends who was a CPA, to start Nuancefinancial.com. I built that thing from the ground up with them.
FORGET TAX RETURN BASED BUSINESSES! “What Are you going to be able to charge for a personal tax return? Between $100 and $800 dollars?”
Part of why I liked the idea of moving into the tax firm world is because I started learning that in the financial planning world, success was all about connecting with people and earning an ongoing fee for doing financial planning.
I hated being an investment advisor because in order to make any money, I had to sell someone a financial product, and the incentive structures rewarding slimey annuity sales, rather than what was in the client’s best interest.
What I wanted to do was play quarterback to my client’s financial life and investments, and having them pay me an ongoing fee to take care of strategy and messing around.
That model would have been in the client’s best interest, but the compensation structure made it nearly impossible to pay a mortgage while doing what’s right.
I ended up frustrated, about the compensation model, while also getting enamored about all the tax planning opportunities available to S-Corps, Real Estate, and Company retirement plans.
So, I decided that we should just start an accounting firm, and help businesses instead.
That’s when I set out to find a business strategy that would drive my economic engine, it would be something I’m passionate about, and be something I could be great at.
We landed on becoming an outsourced accounting firm for small businesses, charging a monthly retainer for a one-stop-shop service.
Bookkeeping software, Bookkeeping Services, Payroll, Payroll Administration, Pro-active tax planning, personal tax returns, corporate tax returns and financial administration.
$500 – $2500 / month
Small to medium sized businesses that want to mitigate taxes with an S-Corp, tax plan with retirement plans or with real estate. Any business who values simplicity and high levels of customer service is also a great target market for the Outsourced Accounting Business model.
I said to myself, “It’d just be easier to bill people.” Then I started to realize that all of the great financial planners around me, were helping. They weren’t tax planners, but they were helping people manage how much they should be putting in ROTH, versus traditional. They were monitoring tax brackets. Basically, they would position themselves as people who would help them maximize their tax brackets, by monitoring how far deep into the 35% tax bracket you were, and then you’d maximize ROTH after that. Then, you’d plan for in retirement, when it was time for distributions, a huge part of their planning or how they would propose it, was that you would be monitoring the three buckets of money you have, a taxable account, a ROTH account and a traditional account.
The idea was, manage your taxes in retirement, because you also have this provisional income number. These planners were actually meeting with pre-retirees and kind of scaring them with this fact that as a retiree, either 85%, 50%, or zero percent of your social security’s gonna get taxed, depending on where your income lies on the provisional income scale. People are saying, “Oh, you’re adding huge value. This is great. I wanna work with you.” Like I said, the earlier intention is that hopefully, they’d roll stuff over. But I said, “Forget this. I don’t wanna do this. Let’s go find some way to do tax planning-type things, but in a way that adds value.”
If you’re thinking about starting a CPA firm or starting a tax firm, listen closely here. Your financial planners out there and positioning themselves to earn one and a half percent on 500,000, two million, five million dollar portfolios to help them not outspend their money. You have an amazing ability to help people be wise with their money, more so than a financial planner probably. Utilizing that wisdom is a key in making a profitable CPA business model.
Deciding Business Strategies – The Hedgehog Concept
I set out to try and add value in my own way in the tax realm. I read everything that Mark Kohler has written. Read everything from the Kiyosaki line of work. They have the tax loopholes of real estate, they have tax free wealth. Started diving into all of the real estate coaching that is out there from Kiyosaki. Wheeler and Sandy Botkin. There’s a couple of great CPA writers out there. Sandy Botkin comes out with a book every year about how small businesses can save a ton of money. That should be part of what you start reading now, because it’s the most practical thing.
What was I able to take away from these books? I concluded that if a CPA is actually engaging with their client, coaching them and training them, helping them implement good tax planning strategies, then you will be saving your client tons of money. I’m like, “Boy, if these CPA’s are already in there, folks business owners need bookkeepers.” They already have a CPA and an accountant. They have to do a tax return. They’re already paying somebody for payroll.
“If a CPA is actually engaging with their client, coaching them and training them, helping them implement good tax planning strategies, then you will be saving your client tons of money “
We sat down together, Nick Meester and I, and we said, “You know what we should do? Let’s provide a service where, for a flat monthly fee, we become their tax coach. We provide proactive tax planning to help them pay their fair share, not a penny more.” When you start doing the analysis on some of these business owners, that had been LLC’s, taxed as a sole proprietor, for decades and they’re making 130,000 dollars right in that sweet mark, where an S corp would absolutely benefit them, when you start doing that analysis.
We thought, “We’re gonna be able to walk in there and propose them, saving them a ton of taxes. You know, there’s some tensions to manage there. We get that. Let’s just do that, and then let’s do the bookkeeping, let’s do the tax planning, let’s do the tax return, let’s provide payroll, let’s go call ADT and let’s get a partnership rolled up. All we’ll do is, we will find businesses that can sit in our hedgehog concept.”
What is the hedgehog concept? Its a theory from Jim Collins book, Good to Great. It states, “You should only execute on strategies that fulfill your passion,” something you could be passionate about, something that gets you up in the morning, right? I found that. It needs to drive your economic engine. It needs to be something that you and your team can be great at. Something that you’re actually excellent at and your life experiences, your education, your network, all plays into. What you can be great at, but drives your economic engine? What can you be great at, but still passionate about at the same time?
What you can be great at, but drives your economic engine? What can you be great at, but still passionate about at the same time?
Well, we knew with Nick Meester there, there wasn’t a tax return that we couldn’t do. He had worked at CBIZ, you know, a top 10 firm in the United States, as a senior tax accountant for almost seven years, before we had done this. Then, he went to go work at Eagle Brook Church, which is the fifth or sixth biggest church in the United States. He was managing a 50 million dollar budget. Accounting-wise, there was nothing he wouldn’t be able to tackle. Tax wise, there was nothing we weren’t confident about. We said, “All right. What can we do?” This is the core of this advice.
If you want to start a tax and accounting firm, get out of the game of doing taxes. You guys cannot be doing 200 tax returns. You know why? If you’re busy in a compression season, that’s the first thing you’ve got going against you. You can only do your job during a certain period of the time. You have got to hustle.
“If you want to add value as a CPA, if you want to be able to earn high monthly retainer clients, its essential to be meeting with them outside the tax season.“
During the period, when you should be providing the most value and doing the most for your clients, you’re gonna be the most stressed and unable to actually dive into their financial situation. If you wanna add value as a CPA, if you wanna be able to earn high monthly retainer clients, its essential to be meeting with them outside of tax season, or at least doing their bookkeeping and accounting for them. You need to do this so you are dialed in to what their P&L actually looks like, so you can help them monitor in these three areas.
First Area –
UTILIZE THE 1099 INCOME WORKERS IN YOUR AREA
To start, you should be helping them manage the tension of the reasonable salary and the S-corp distribution. That just requires management. Certainly, there’s a level of business owner, that this is not applicable towards. I tell you what, in a 10 mile circle around your office, there are hundreds of business owners and entrepreneurs and 1099 income earners. Realtors, house painters, just those two alone, you go to home builders, re-modeler’s, general contractors, anybody who’s a freelancer, all the wedding photographers you’ve ever met, that are actually successful.
If they’re making between net profit of 30K, and 300K, that’s probably a perfect client for you to say, “For a flat monthly fee I’m gonna be able to help you manage this tension, run your payroll, so that it’s reasonable, help you make those decisions and guide you.” They’d be able to save a lot of taxes. That’s all you’re doing is help them pay their fair share, not a penny more. They’re already paying you for their services.
Second Area – MAKE CONTRIBUTIONS TO 401Ks
The second area where you can add a ton of value is helping people with their retirement planning or retirement plans, right? By making contributions to IRA’s, 401Ks, you’re gonna be able to add a ton of value. Most people don’t think about this. You’re a financial planner, you’re not a financial planner as a CPA right? You’re not selling insurance. You cannot make an official recommendation, right? You have to be unbiased. Here’s what you can recommend. You can recommend how much of an employer, versus employee contribution you can make. Folks, when you have 401K plans, and you have SEP-IRAs, and you’re starting to manage how big of an employer contribution you can make to your owners and your employees, you can save stupid amounts in taxes.
Third Area – HELPING CLIENTS PLAN REAL ESTATE INVESTMENT
The third and final way that you can add value is helping clients plan real estate. When you get your business owner starting to make investments into owning the property that they’re gonna be in, or making investments on property you know for a fact that you get to leverage, depreciation, cost segregation’s, and passive income, to have tax efficient wealth, right? Those are the three pillars.
I just equipped you with absolute gold from the financial planning perspective. You help people manage the tension in their S-Corp, between a reasonable salary and the distribution. You help them make employer contributions to their 401ks, even solo 401Ks. Vanguard has a great individual K, where you can make both an employee and an employer contribution up to … You know the rules, up to 20% or 25% of the net profits. You do those three things, you’re gonna be able to save your clients tons of money, right?
If you save your clients tons of money, how much money are you gonna be worth to them? That was what we set out to do. We knew that we wanted to be able to do something special, that helped our clients manage those three tensions. That’s just to help them maximize their tax savings. Every bit … I know hardly any business owners that love, or just don’t fight takin what they’ve earned and handing it over to the government. Now, I know that’s a cynical view of taxes right? I’m probably a little cynical of using the government to take from one group of people and distribute to the majority, but whatever.
I’ve never met a business owner that doesn’t nod their head in the quest for trying to mitigate taxes. That’s the first value proposition we wanted to set out on. By mitigating those taxes you’re gonna be able to earn the favor of your clients if you do it in a win some way. The first thing is, you need to use that as a value proposition to your client although it can’t be the only value proposition. We set out to get out of the tax return business and get into the adding value business.
Not only were we gonna add value to these clients, helping them with those three things, but we also knew that they just need things to go, right? Most entrepreneurs are execution people. In every business, you have kind of three types of people. You have the sales, and then you have the execution of the job and then you have your administrative people, right? Administrators generally speaking, struggle. You’re going to struggle with this.
If you’re a CPA, and you’re an accountant, everything I just told you right now, you might be nodding your head to. I guarantee you, chances are your biggest weakness is in sales, and running meetings, so that this makes sense. You need a coach and a consultant. That’s something that we can do with you. You’re gonna struggle with that. You’re gonna be administratively struggling.
Your entrepreneur by nature, is usually somebody who’s good at executing at the job, doing the actual work, and then some of them are really good at sales. When they can get the two of those down pat, they are running well. What you should know is if you can come alongside these business owners and save them from having to hire an in-house accountant.
First Proposition: Mitigation Taxes
Your first value proposition that you should be thinking about, as a CPA, starting a new CPA firm or a little tax and accounting firm, is that you help people by mitigating their taxes. How do you mitigate their taxes? Well, there’s three levers you pull. From there, you wanna help save them time and money. Now, here’s what I want you to think about. How much is it worth, how much is a 15 dollar an hour bookkeeper, even at half time, right?
If this business owner decides that they wanna hire their own bookkeeper, or their own accountant or their own administrative staff, to go in and reconcile everything, they might be thinking, “Boy, I don’t need to hire a full-time CPA to do that. I don’t need to pay CPA rates. I don’t need to pay a bookkeeper to do that. I can just hire … My wife will od it.” Maybe they have somebody that comes into their business and just helps them out maybe one day a week for eight hours-type of deal.
I tell you what. First of all, every business I meet struggles with that. The reason why they struggle with that is because that person is usually only about 80% correct in their actual accuracy. They tend not to be super accurate in terms of their tax knowledge and how they do their bookkeeping. It always requires clean up. There’s additional cost there. You think about what that costs per month for them to have somebody come in once a week for eight hours a day at 15 to 25 bucks an hour, that’s quite a bit of money. This should start earmarking to you, about how much you should be charging for a monthly retainer. I’m gonna get there. I’m gonna tell you how much of a monthly retainer you should probably be positioning to clients, or prospects so that you can have a successful CPA firm.
Now, if you wanna do big fancy tax returns and you wanna charge 20,000 grand for tax returns, you go right ahead. That’s not what this is all about. What I’m talking about, is finding 15 to 50 clients that are gonna pay you monthly retainers between 500 dollars and 2500 dollars a month, to be their outsourced accountant. If you can be their outsourced accountant that handles their taxes, their bookkeeping, their payroll, and give [inaudible 00:16:54] of tax mitigation strategies and help them do that, they’re gonna love you. That’s what we’re gonna get here right?
Think about how much they’re gonna have to pay monthly for a part-time … I call her Patty Part-timer. That gal, or that guy that comes in and just helps them with the administrative stuff, so they can focus on sales and execution, you have to have an administrator. You need to be thinking in your mind of how do you help this business owner, not have to hire that person. When you do that, you’re genuinely going to replace a staff member. When you replace a staff member, that they no longer have to hire, train, manage and potentially fire, they don’t have to deal with any of that, there’s huge economic value to that. You’re gonna find that out as a business owner. Hiring people’s not easy, it’s hard.
Second Proposition: Accounting to Save Time
Second value proposition is going to save them time and money. How are you gonna save them time and money? Well, you should do the bookkeeping for them. Set all your clients up on Zero or on QuickBooks online, or one of the cloud based bookkeeping softwares, that can also tie into your tax software, whatever that is. This does not have to be rocket science. You don’t need the world’s biggest planner. If you go with Drake, or even if you just do some of the Intuit softwares, you start looking at the costs, you just need to find out what’s the most efficient for you to do, your 1120s, Schedule C’s, regular personal returns. You don’t need Thompson Reuters. You really don’t need that giant, giant system.
The key to everything is you being a proactive bookkeeper, right? If you do the bookkeeping … Basically what you do is, the moment you start with your clients, you’re going to help them become fiscal responsibility kings and queens. You’re gonna help them make sure that they’ve got their business account, that they never screw around by using the wrong account. You’re gonna help them make decisions with that.
All that means, is with your clients, you’re gonna take your month, and of your five days during the work week, you’re gonna earmark, you’re gonna hit every account, two or three times. All you’re gonna do is login to QuickBooks, get everything reconciled, clean it up, stay on top of it, understand their P&L, and then you can automate that report coming out. “Hey, where your profit is at right now. Here’s where your estimated taxes might be on that. Hey, I wanna run a payroll, cause we’re doing X, Y, Z.”
The foundation of you being able to provide those tax services, or the tax mitigation services, is you being in their bookkeeping. If you are in their bookkeeping and doing that, you are a highly informed person. There’s a couple of things. One, you’re saving them time, sure. Also, you get to be the most informed person. Think of the … I used to call it … You just have the fatigue. There’s costs and effort that go into getting bookkeeping over to the CPA [inaudible 00:19:50].
No matter what, you have that coordination fatigue is what I used to call it, when you have a bookkeeping system, a payroll system and a CPA or a tax person, when you have three different ones of those, you have a coordination fatigue. There’s value in that for a business owner not to have to, “Let me email the bookkeeper. We’ll pull the report.” You wasting their time, trying to coordinate those three things together, so that you can do what you do. That stinks. You’re gonna save them time in this.
In your conversations, you’ve got this coordination fatigue that you’re gonna save. They don’t have to email all three. You’re gonna serve all three. Besides coordination fatigue, you also make yourself the absolute wizard of their business. I’m telling you right now guys, if you can get 20 clients at 800 dollars a month, and all you’re doing is bookkeeping, tax returns, and corporate taxes and payroll for 20 companies, it’s really not that bad. You’re gonna have a great life. You’re gonna have a good successful business. Your clients are gonna love you. You’re gonna help them mitigate taxes, you’re gonna help them save time and money.
Are you gonna be busy? Yep. You’re gonna be in a six figure job. You’re gonna be having the most successful tax firm of anybody around you, and really your tax season looks pretty good, compared to the schmuck down the road, that just chased 500 dollar tax returns all day long, and is wondering how he’s gonna up his hourly rate. It’s like, get out of the tax game, get into the tax mitigation game. That second thing is that you wanna get in the time saving game. The way you do that is you be their bookkeeper, you be their actual person. By doing that, you’re gonna save their fatigue. They’re not gonna have to coordinate between things. You are going to be the most informed person on their business. You’re gonna add a ton of value.
Third Proposition: Keeping your Businesses Safe
Here’s the final thing. You wanna offer payroll, right? By offering payroll, what you’re gonna do is you’re going to, again, help you stay close to the client, you’re gonna keep that report going, because payroll is the most important thing to that business owner. The thing that puts money in the bank accounts of the people who help him in his business, is a critical thing.
Now, payroll’s risky. I think there’s an argument for not doing payroll, and there’s an argument for doing, or performing the actual payroll. At Nuance Financial Taxes and Accounting, for us to charge between 500 and 2500 bucks a month, legitimately, I’m not pumping that up. We would sit down and say, “Hey. Here’s what we’re gonna do. We’re gonna do all your taxes, we’re gonna save you in taxes, we’re gonna save you in time, you’re not gonna hire this person. That’s gonna be 1500 bucks a month.”
At first they’re kind of like, “Whoa,” but then we would frame up, “Well, what are you gonna do? Look at all of this we’re gonna save you. We have wholesale ADP, we have wholesale QuickBooks, we’re gonna do your tax return, we’re gonna do the 1120S, we’re gonna do your personal returns, we’re gonna help you make calls on your retirement plan contributions, we’re gonna save you money on your S-Corp, we’re gonna go in an help you understand how to build wealth over time.” They’re just going, “Okay. 1500 bucks a month.”
Here’s the deal with payroll. Payroll can be nice, because you can just get an amount of money humming. You can do wholesale ADP, or Paychex, or you can even do some of these other guys. You’re gonna have an okay time, just having an in-home billing system, right? Most tax firms look at it this way. I’ll get ADP wholesale for 30 dollars cost, and I’ll charge 130 dollars, or 250 bucks. I’ll just make that money. That could be a good way to do it.
The nice part is, is when you’re not … When there’s something wrong in payroll, it’s the house burning. You have got to get it fixed this second, which is really frustrating. You can’t screw up payroll. I didn’t want us to be in the payroll game, because I thought it was a high risk, high complexity, just, you cannot goof that up. If you make a mistake, you’re impacting not just that business owner, but now you’re impacting his employees. When you’re doing this outsourced accounting, that’s what this whole thing is, is to be their outsourced accountant, you’ll have a make a decision whether you wanna actually run their payroll, or just help them get trained and set up how to do the payroll. It is a high risk thing.
That being said, it’s also a high value thing. When your client doesn’t have to worry about it, and it just hums, and all of his employees, when they have new 10, you know, they have everything they need filled out. They have a new freelancing person, 1099 income. “Hey. Just call my firm. They’re gonna run that paperwork.” You’ll get your W9s and you’ll get all the … You’ll process everything for ’em. That can be a bureaucratic nightmare. You gotta be careful there. Your goal is, in all of this is, to do low complexity, high profitability work. In my mind, you wanna find the thing that doesn’t require great complexity and too many calories, that can have a high pay off.
Folks, if you’re starting a CPA firm and you wanna have success with a small group of clients, serve as an outsourced accountant. Do the thing I have told you here, consider payroll. I’m telling you, you’re gonna have a great business. It will work. We’ve done it. The next videos going be all about how do you do client acquisition in this outsourced accounting model.