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Does a gas station sell more regular
or premium gas? Most
consumers buy regular gas because they just want cheaper fuel to get
where they need to go. All consumers know premium gas is a richer
mixture and some consumers buy premium because they are convinced of
the value. Most of us just want gas and don’t want to analyze the
chemical reasons why premium is a better fuel. If you always have
bought regular gas, you probably always will because that is what you
are used to and don’t see the value in paying another twenty cents a
gallon.
In general, people don’t like to rock
the boat. They get comfortable
in routines, make money in those routines, and feel change may impact
their ability to earn the money they depend on. Back in the days when
the key corporate asset of Microsoft was Bill Gates’ used car, he was
selling a concept many people did not understand. IBM, one of the most
powerful and intelligent corporations ever, was interested in selling
computer hardware, not software. The software was considered the
“fluff” back in the early days of computing. Gates saw a window of
opportunity and turned his ideas into a thirty billion dollar
corporation.
Time is the driving factor in a CPA
firm. It is the reverse
of Las Vegas. In a casino, there are no clocks or windows. They want
you to lose track of time at the gaming tables. Time has no value in
Vegas. In a CPA firm, at the height of tax season, the clock dictates
your life. Time is scheduled, monitored, and scarce. If you run into a
problem, you just fall further behind. By the end of three plus months
of 70-hour weeks, most professionals just want to relax and forget
about everything for a while.
Outsourcing
tax or other services is a time and money management decision.
Firms turn away work at tax season
because they are strapped for time. Some choose not to market to
tax-only clients or aggressively price work which may force potential
clients to look elsewhere. Most firms carry too large a staff for
twelve months because they need bodies to service the heavy tax
season. A factory or warehouse can staff up for busy seasons and trim
back to normal levels because of the minimal skills involved and a
ready supply of labor. In the CPA profession, the available supply of
qualified accounting professionals is limited. Firms hire to staffing
levels required to service the busy season demand, but hold on to
their professionals for the entire year because rehiring and
retraining is too costly.
As a result, CPA firms “burn cash” in
the off-season. Cash reserves
are accumulated and then spent on fixed personnel expenses during
slower periods. Other than letting staff go, there are three ways to
reduce the cash burn in the off-season:
·
Find off-season audit,
tax and accounting work. This is generally easier said than done.
·
Begin delivering
additional advisory services to existing clients.
Again, if the firm had the skills in-house and the client demand for
advisory services, then they would not be in a position of burning
busy-season cash in the off-season. However, this is an area most
firms are deficient in that could be corrected with some analytical
tools.
·
Create a method of
lowering annual staffing costs without interrupting client services.
This is where outsourcing paid off for us. If in-house resources are
supplemented by an outsourced tax preparation service, a firm does not
need as many professionals during the tax season peak. The firm can
assign in-house staff to other responsibilities, let attrition settle
in, or aggressively look for unlimited amounts of additional tax work.
The outsourced agent can adjust its staffing to accommodate as many
returns as you can give them.
Outsourcing
balances the geographic supply and demand principles for the CPA
profession.
Our Massachusetts firm has limits on
the available supply of trained professionals, but our outsourced
agent has a large, trained supply of resources willing to work for the
busy season. We use our higher paid workforce for more complex tax and
audit work and outsource preparation to a more cost efficient channel.
Other firms may elect to retain most of their tax work and selectively
use outsourcing as an overflow valve and a controlled method of
growth.
Our
firm outsourced to maximize the capabilities of full-time
professionals.
We needed our staff to better utilize
its talents. Currently, we successfully outsource 100% of our
individual tax returns and about 15% of our corporate work. Our plan
is to increase the number of outsourced corporate tax returns to 40%
or 50%. It is unrealistic to expect to outsource all corporate tax
work. It is realistic for us to expect our in-house professionals to
devote more time and attention to our client’s business issues.
Compliance is a necessary function, but clients place little value on
a well-prepared tax return. Most do not understand what we did to
prepare the return anyway.
We
received financial and “staff intangible” benefits.
Beyond the profit impact, the employee
trust and loyalty we earned was immeasurable. It will be difficult for
professionals to leave our firm because other firms will require them
to work a heavier tax season. Instead of people working to 10:00 p.m.
or midnight, our employees went home at 6:00
p.m. to 7:00 p.m. on weekdays. Saturdays used to be 12-hour
days; now they are half days. With less stress on the system,
employees have flexibility as to when they need to get their work
done. We cut our busy season 70-hour work week down to 50 hours. That
made an impact with our employees.
Specifically, we
accomplished four primary goals:
-
Lower
internal cost of each tax return.
Our calculations show the cost of preparing individual returns
dropped 50% to 60%. The financial data on our first group of
corporate returns is still being reviewed, but we anticipate similar
results.
-
Adjusted
our excess supply of personnel.
We needed a few less people to accomplish the same revenues. Rather
than letting people go, we let attrition and new work consume the
excess capacity. Each new client added became all profit since we
freed up time within our firm. When we were done with attrition and
“balancing,” our profitability increased significantly.
-
Refocused our skilled CPAs.
We shifted our work focus from meeting compliance deadlines to
spending more time discussing clients’ business issues. By
realigning our focus and utilizing outsourcing, our clients still
met compliance deadlines but began seeing our professionals provide
ideas and input that clients felt had more value.
-
Employee satisfaction was at an
all time high. Staff was
able to go to their children’s school or sports events and get home
in time to share a meal with their family. We have not realized the
full impact of this result yet: How many employees will stay with us
because of this unique feature? How many future employees will seek
out our firm?
Workflow automation played a major
part in this process.
It
was an additional benefit outsourcing brought to the table, but that
is a story for another day. Outsourcing is more than a “pricing
decision.” It is a method of increasing profits, improving the
lifestyle of partners and employees, and advancing the use of
technology in your practice.
CPA firms should evaluate their
primary goal. What is their
primary business objective? Is it to make money or train young
professionals to do tax work? What is their client service objective?
Our firm’s client service objective is to divert as much preparation
work as possible to a cost-effective source. This enables our CPAs and
MBAs to use their skills to review and edit returns as needed, while
keeping focused on our clients’ business needs and long-term
objectives.
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