Each year, tax time is an opportunity to expand your accounting firm’s client base. How did your firm fare this year? That is a question firms should consider as they reflect on the tax season.
Leading up to tax time, there are potential clients ranging from individuals to major corporations who may be on the hunt for a new tax preparer. Firms not only need to be ready when the opportunity comes knocking, they must also understand the proactive steps they can take to drive greater growth and profitability through an expanded client base.
According to a 2021 study from the Thomson Reuters Institute, tax professionals are looking to return to a more normal working environment and a return to some of the strategic priorities they had in mind pre-pandemic. These priorities, however, have been modernized to reflect the experiences of working through the pandemic and adapting to the new world. This includes growth — more clients, more revenue — and bringing more value to the client relationship.
What’s important to keep in mind, however, is attracting and maintaining the right clients.
Understanding your ideal client base
As a guiding principle for many businesses, focusing on “quality over quantity” can help your firm achieve better results. Taking the time to understand what criteria make up your ideal clients and using that profile to expand your client base helps you to focus on obtaining the best clients for your practice.
When bringing in new clients, it is important to find clients who are the right fit for your firm. This will go a long way in helping your firm drive greater growth and profitability. In some cases, this may even mean firing some current clients to become stronger.
Too often, firms keep less than ideal clients for the sake of the relationship. These are clients who have become too much work for the amount of revenue they generate. In these cases, firms should seriously consider separating from them and seeking new clients who better align with the firm’s goals, business model, and culture.
Think of it this way: The time and energy you spend dealing with less than ideal clients is time that can be spent bringing in new, more profitable clients. This will also mean less stress for you and your staff.
“The clients you may want to consider firing are the ones that take up too much time. If 80 percent of your time is spent managing clients who represent 20 percent of your revenue, getting rid of that 20 percent can free up a lot of time that is better spent on better clients,” said Greg Pope, Vice President of Marketing at SurePrep. “The other [clients to consider firing] … are the ones that contribute to frustration levels. Eliminating the frustration is a meaningful benefit to the firm.”
Underscoring this point, Micah Fraim, of Roanoke, Va.-based Fraim, Cawley & Company, CPAs, wrote in a blog post, “Despite semi-routinely having to tell a client that things just aren’t working out and that they need to go find help elsewhere (we fired a dozen or so this past tax season), my firm’s revenues continue to rise. Because we are only dealing with people whom we like and who like us (and respect our time and processes). This builds us up, motivates us (we love the clients we have so we want to do anything possible to help them), and energizes us. And that allows us to handle their needs and the needs of our other clients.”
So, how can firms find clients who are the right fit? Some firms have found success by internally grading their clients and turning to the “A” clients for referrals.
What is an “A” client?
As outlined in a blog post by Rob Nixon, the creator of the coaching program Profitable Partners, criteria for an “A-grade” accounting client include:
- They are ambitious business owners who are hungry for success.
- Chances are high for a stable, long-term relationship. Consider prioritizing stable, existing businesses over start-ups.
- Aim for an 80 percent gross profit minimum in your services. Consider losing clients who fall below that minimum.
- You enjoy working with that client.
- The client adheres to your firm’s workflow, pays you on time, and does other things that ensure your business runs smoothly.
Nixon also stressed the importance of focusing on a niche market as a way to help identify clients who are the ideal fit. “Everybody excels at something. So, what’s your company’s strongest suit? This is one of the first questions that you need to ask yourself before you start looking for clients. If you try to be a jack of all trades, you’ll get lost in the crowd,” Nixon wrote his blog post titled, “The 6 Criteria for an A-Grade Client.”
Growing your accounting firm through specialization
Many accounting firms have tried to grow their practice by being all things to all clients. The potential problem with this approach is that it can hurt the firm when they get very specialized client requests.
Recognizing the value in specialization, a growing number of firms are shifting their approach to become experts in a specific field, serving such clients as doctors, dentists, contractors, or real estate professionals.
Specialization can help set your firm apart from the competition and can open up profitable growth opportunities. If your firm is an industry authority in a specific niche, you’ll be the first firm potential clients think of when the need arises.
Consider this: A study conducted by CPA.com, Bill.com, and the Hinge Research Institute asked business professionals who purchase services from accounting firms what they would change about their accounting firms. They found that 27 percent said they wanted their firms to have more familiarity with their business and industry.
Accounting firms that do specialize in specific industries can also benefit from word-of-mouth referrals and by gaining greater exposure through industry-specific events and associations.
“If you have a specialty, for example, automobile dealerships, or construction companies … there are usually industry-specific groups that you could sponsor. That’s a good channel for growing the business,” Pope said.
Interested in specialization, but not sure where to begin? Consider taking a closer look at your current client base. This may help you recognize similarities or themes. For instance, let’s say your firm has 1,000 tax clients and 100 of those clients are physicians. You may already have a niche and not even know it.
Another good starting point is by focusing on your passions and interests. For example, maybe you have a strong interest in real estate? If so, perhaps pursuing that passion and marketing to real estate professionals is a good move for your firm.
Grow your accounting firm through enhanced client service
Unfortunately, some firms sell themselves short when it comes to the services they provide or the services they think their clients want from them. Don’t let your accounting firm fall victim. Bring greater value to the client relationship.
While most firms’ bread and butter is the tax return, there are many ancillary services that clients may want and need. That’s why, as you meet with clients around tax season, it is important to have conversations about what is happening in their business and the other types of services you can provide.
These conversations can help uncover hidden client needs, like advisory or other types of services. Oftentimes, conversations with clients revolve around compliance issues, which are no doubt important, but firms must not overlook more value-add opportunities.
In fact, research by Thomson Reuters Institute found that 95 percent of tax professionals believe their clients want business advisory services.
During the onset of the pandemic, many accounting professionals were forced into a de facto business advisor role. Clients sought advice about everything from applying for Paycheck Protection Program loans to how to manage their finances to keep their businesses afloat. This increased demand for business advice is expected to remain high well beyond the pandemic.
“[Tax professionals] have a pretty captive audience. At the beginning of the tax season, the firm sends their tax clients things like engagement letters, statements of work, things that either need to be read, or read and signed. Clients may not be aware of all the services you offer, so that seems like a great opportunity to put some additional ancillary service offerings in front of the tax client,” said Pope, noting that it could be a one-page insert or even a brochure.
It may also prove beneficial to have a designated team member — one who is comfortable with sales and marketing — in charge of promoting the ancillary services to clients and scheduling brief meetings or phone calls with clients.
It is also important not to overlook the importance of technology and collaboration tools when it comes to bringing in new clients.
“These days, most people prefer to use technology that allows them to collaborate with their CPA in a modern way. … Using technology to your advantage in attracting new clients is important too,” Pope said.
Explore more growth opportunities for your accounting firm
Every tax season brings about opportunities to grow your firm’s client base. Take steps today to ensure you’re ideally positioned to better compete and, ultimately, increase profitability.
The good news is you don’t have to go it alone. To learn more about growing your practice and other issues facing firms in today’s market, watch our “Tax Season Report Card: How Did Your Firm Score This Tax Season?” webcast on-demand.
