Another tax season is almost in the books. Was this season any different than any of your prior years? Were you able to overcome the obstacles that drove you absolutely nuts last year? How many of the same clients did you have to automatically extend, or how many balked at your bill without realizing that it’s only half of the actual hours you put in? Change is hard, especially in the deadline-driven and completely inelastic industry we’re in. There is not enough talent to meet or sustain the growing demand and complexities of clients needing tax compliance and planning work done. So you might be wondering, is there a better way? By diversifying your services and offering financial planning, you can prevent another grueling tax season, become your clients' most trusted advisor, and gain the work-life balance you've been searching for, all while growing your practice!
Let’s face it, what keeps you working late nights, early mornings, and weekends is the fact that every billable hour you put in means more money in your pocket, however, there are only so many hours you can cram into a single tax season. While it might not seem bad at first, years of overextending yourself can lead to burnout and frustration. What if I told you there was another way? Adding financial planning—specifically investment advisory services—to your practice will result in more revenue, requiring you to work significantly fewer hours. We're all numbers people here, so let's break it down:
To generate $1 million in tax prep revenue, you might prepare 1,000 individual tax returns at $500. Each return may take around two hours to complete. Additionally, you may also prepare 333 corporate tax returns at $1,500. Those corporate returns probably require about ten hours each. This means that, in order to make $1 million in revenue, you would be working 5,330 hours which works out to be 102.5 hours per week for a year!
Now, compare that information to a financial planner's revenue using the Registered Investment Advisor model; you could generate $1 million in revenue with as little as ten clients with $10 million each in investable assets. These types of clients, known as high net worth, can take anywhere from 20 to 80 hours a year to manage. You could spend roughly 800 hours a year on these clients, or 15 hours per week.
Alternatively, looking at the mass affluent population, which is defined as a family with a net worth between $500,000 and $1 million, you’d need to serve 200 clients at the $500,000 level, investing two to ten hours in each per year. Again, if you lean towards the higher estimate, you would spend 2,000 hours, or 38 hours per week to generate $1 million in revenue. These estimates highlight the difference in effort-to-revenue potential. Here's a chart to break it down:
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The numbers speak for themselves; adding financial planning services can make a huge impact on your practice and work-life balance; however, we're not advocating for you to stop doing taxes—we're advocating for you to do them smarter. With the right setup, training, and back-office resources, adding financial planning to your tax practice will allow you to serve your best clients in the best ways to benefit them and their financial growth.
Are you ready to avoid another grueling tax season? Join CPAlliance® and FICPA for a CPA Personal Financial Planning Boot Camp during the MEGA Conference in Orlando! Click the button below to receive $100 off your CPA Boot Camp Registration!
Shawn J. McCabe | CPA/PFS, CFP®, MSA, MBA
CPAlliance® Director | Partner