Increasing profitability is a fundamental part of growing and maintaining a business. For small and mid-sized tax and accounting firms, there are plenty of ways to do so. Whether you want to increase overall sales and revenue, decrease expenses, or a bit of both, 8 strategies to increase profitability are explored below.
8 ways small and mid-sized accounting firms can increase profitability
1. Create a referral plan
Word-of-mouth referrals are a powerful thing for any business, but even more so in tax and accounting. When hiring an accountant, clients need to know they can trust you before they make a decision. Having a recommendation from someone they know is a great way to ensure that.
While you hope your clients will be so happy that they’ll tell everyone about your accounting services, most people won’t think to do so.
A referral plan that compensates clients for sending new business your way is a simple way to incentivize those all-important word-of-mouth referrals. If you would rather not offer existing clients money, alternatives include incentives like free additional services, discounts, or free resources.
2. Cross-sell tax and accounting services to existing customers
Customer acquisition should be a big focus, but don’t forget your existing client base.
If you offer a variety of tax and accounting services, you’ll likely have clients who aren’t signed up for all of them. Segment your client list into different services and approach them with an offer to sign up for any additional ones they don’t have. For example, if you have clients signed up for general tax preparation services, introduce them to your tax planning or audit services as well.
This can be as simple as an email letting them know there’s another service they may be interested in. You could even offer a discount for being an existing customer.
3. Avoid low-value tax and accounting services
If you have many different offerings, you’ll no doubt have some that are high-value and those that don’t turn much of a profit.
It’s worth considering what it would be like if you dropped those low-value services entirely. You could free up time for your tax and accounting staff to focus them on higher-value work that increases revenue.
4. Reduce inefficient spending
The flip side of improving profitability is reducing expenses. Take a look at all your expenses and evaluate where you’re overspending. Maybe you’re paying for expensive office rent when you could operate a remote-based firm instead.
If you’re currently hiring expensive contractors or want to cut staffing costs, outsourcing certain responsibilities to an external company could save your tax and accounting firm money as well. For example, some firms choose to outsource marketing rather than hire an in-house team. Automation and the right accounting software can also reduce the time you spend on manual tasks, allowing your staff to be more productive.
5. Elevate your firm’s brand and perceived value
People aren’t always looking for the cheapest option, and perceived value is key to boosting profits. In fact, with a high perceived value, you have more room to increase the price of your tax and accounting services.
Ways to elevate your brand include brand management, marketing, and becoming a thought leader in your industry by publishing high-value content. For example, publishing guest articles on a reputable industry news website is one way to boost perceived value and increase exposure.
6. Revisit your accounting firm’s marketing strategy
Marketing is essential for any business looking to grow and profit. While marketing is an expensive investment and commitment, it can pay dividends for your tax and accounting firm. The key to getting more clients lies in building more awareness and exposure for your accounting firm.
Focus on things like content creation, social media marketing, paid online advertising, and search engine optimization (SEO). This may be something you want to either outsource to a marketing agency or hire people to take on this responsibility. Either way, if marketing is currently on the backburner and not a priority, make it one going forward.
7. Revisit the pricing of your tax and accounting services
It’s always worth revisiting your pricing regularly as the market changes.
If you want to increase profitability, there are two ways to do this. One way is to increase your service fees to boost your profits. Another way is to reduce them to become more competitive. Lower fees than your competitors could be the deciding factor for a potential client looking for a new accounting firm.
As with any pricing change, this shouldn’t be done on a whim and should be based on financial analysis, market research, and forecasts.
Another approach you can take with pricing is to start operating a value-based pricing model rather than an hourly one. Many accounting and tax firms operate on an hourly pricing model, but this creates additional work for employees because they need to account for how their time is spent.
Instead, price your services according to the value you provide. This could be a fixed cost per service or something more flexible. This could even benefit your clients if they know exactly how much your service will cost in advance.
8. Expand your accounting services
Some accounting and tax firms offer only tax preparation. While that’s important, there are more opportunities to explore. Instead of focusing just on tax preparation, it could be worth adding additional services that help the firm maintain profitability all year round.
For example, adding bookkeeping, financial planning, or payroll could expand your potential for revenue. It might also become a deciding factor for a potential client who’s looking for more of a strategic financial partner.
Regularly revisit the profitability of your tax and accounting firm
Improving profitability is a long-term, nonstop endeavor. It’s something that small and mid-sized tax and accounting firms should regularly revisit. Make it part of your monthly reviews and forecasts to ensure you’re always tweaking your business, reevaluating your services, and prioritizing profitability.
For more guidance on managing your tax and accounting firm, take a look at Practice Forward, which helps you enhance your firm’s advisory services, and UltraTax CS for all your firm’s compliance solutions.