Increasing Profits and Efficiency in a Tax Office

The most valuable resource of any company is its people. Train them well.

Running a business is similar to conducting a science experiment. Unsuccessful proprietors use trial and error hoping to find a winning strategy. Gamblers do something similar. Successful business owners do things a bit differently; examine where need exists and then search out a plausible solution.

Success is similar across all industries and business sizes. Whether you are managing a massive international corporation, a regional firm, a small local business or running a side gig to pay the bills while you enjoy all life has to offer, the rules of success are similar from top to bottom.

Today we will focus on the side hustle and small local businesses. The conversation will also focus on the tax preparation industry.

I own and run my own accounting practice which is centered on tax and have been doing so for over three decades. What worked in the 1980s and 1990s would bring you ridicule if you tried the same thing today. For example, I offered free electronic filing in my community before any other tax firm. Offer free electronic filing as you shtick today and you’d get a plethora or dead stares.




Transformations

My tax office morphed into something different on a regular business since the beginning. Of interest to you, kind readers, is the current transformation.

There are a variety of tools underutilized by most tax offices that would increase productivity, reduce stress and increase profits.

Why these tools are so underutilized is a mystery to me. It shouldn’t be such a personal mystery since I had to be dragged into the room kicking and screaming. What forced the current transformation of my business was an unusual event a few years back.

A series of events led to this blog and a national footprint for my very small firm. All the technology I pooh-poohed in the past now was desperately needed. I was so unprepared the first year from the influx of work I almost lost my practice. It was a disaster.

I’m not the kind of guy who quits! It was time to open my mind and transform my practice once again. Now with several strategies implemented I want to share how I increased my business footprint, reduced headcount, reduced stress and sent profits higher than ever before.

Profit Power Plays

The old model of tax preparation required an army of tax professionals plugging numbers into the software. Since tax preparation is nothing more than glorified data entry (sorry peers) it was easy to automate virtually every aspect of the preparation process. (So a rabid mob of tax professionals don’t lynch me, the tax profession is more than data processing. Yes, tax preparation IS data entry. As long as you know where to plug the numbers you are golden. However, it is still rote, mind numbing work. Where a tax preparer turns professional is when she consults with clients helping them get different numbers before the fact to plug into said computer. Better?)

There are three things I implemented in the last year or two which made all the difference and a few things which didn’t work.

The three things which worked well are Gruntworx, outsourcing and cloud services. What didn’t work was outsourcing. Yes, some outsourcing worked like a charm and one attempt was a disaster. I’ll elaborate on each winning attempt and the one thing I wish I wouldn’t have wasted my time on.




Gruntworx

Gruntworx was the best thing I added to my practice in the last decade.  For a couple thousand dollars Gruntworx eliminated the need for several data entry staff. Most returns cost less than $10 to send to Gruntworx in my office.

The trick of turning Gruntworx into a profit engine requires some explanation. First, simple returns are virtually completed, requiring only your review. At first I resisted sending small returns with a few W-2s, interest income, dividends and mortgage interest. Then I realized Gruntwork practically finished the return for a buck seventy-five, or thereabouts. There is no way I can get the work done in-house for close to that cost. A quick review, adding any items Gruntworx doesn’t handle, and the return is ready to present to the client.

Larger returns still require an experienced tax professional. Gruntworx handles a variety of traditional tax reporting forms (W-2s, a variety of 1099s and other similar type forms), but can’t input most Schedule C, E and F expenses. Gruntworx will enter 1099-MISC income to Schedule C. But, since expenses are beyond the capabilities of Gruntworx my office quickly elected to handle those entries internally.

Brokerage statements are a snap with Gruntworx and probably the biggest time saver of all the forms except W-2s, and W-2s only take more time because there are so many of them on almost all returns.

There are a few caveats. Gruntworx is really fast, but is slower to get data entry back to you as the April due date approaches. My office had a response to most files sent within 24 hours, sometimes only a few hours. By mid-March to the finish line it became a few days.

Gruntworx pricing.

Another caveat involves brokerage statements. Clients with massive trades will send the Gruntworx bill for that client quite high. One client had a thick stack of trades which would have wasted a day entering the data. Gruntworx charged $78.50. Still a deal, but my policy is to scan and attach pertinent pages of the brokerage statement and enter only the consolidated numbers in the software. This is fast AND cheap and you know how cheap this accountant is. (Some accountants disagree with my policy. I’m good with that. Just send it to Gruntworx and get the workload out of your office.)

One final caveat involving Gruntworx. Review is necessary! As every tax professional’s eyes will attest, tax documents can be hard to read at times. We found two errors this tax season from Gruntworx. The computer entered a smudged number wrong. There is still room for the tax professional in the Gruntworx world.

Gruntworx works with Drake Software, which I use in my office. It also works with some Intuit, Thomson and CCH software. If your tax software isn’t on the list still check with Gruntworx as it still might work. If not, similar products are available for all the larger commercial software packages.

You can estimate the cost of Gruntworx for your office here.

Gruntworx and Drake are used by my office, but are not affiliates. Regardless, I highly recommend both for large and small tax offices. These companies will supercharge your tax prep side gig run out of the home or store front firm. Gruntworx makes you look like a larger and more professional firm




Outsourcing

Outsourcing is admitting you don’t have to do everything yourself. In the past we handled payroll, bookkeeping, tax, audit and consulting all under one roof. This is a lot for a small one-location firm.

There are different levels of outsourcing. The level which worked for me involved payroll. Payroll requires dedicated staff and I didn’t handle enough payrolls to keep payroll dedicated staff. Also, payroll is a commodity business with national firms sucking all the profit out of it for small and local firms.

Virtually all payrolls are now handled by someone else. You can read about it hear, including who I use. (Reminder: the payroll service I use is an affiliate.)

My firm earns more profit not preparing payroll than we did doing all the work. Outsourcing freed valuable resources for other important tasks.

Where payroll was a success story, tax preparation was not. I knew there were serious issues to manage if it was going to work, but in the end it was a complete failure.

I will keep business names out of it. My goal is not to defame, but to inform.

First, I asked several local clients if they’d be willing to allow me to outsource their tax return to a U.S. source. A small number agreed to help with my experiment.

A VPN was set up with security locked tight to protect data. To make a long story short, the outsourcing firm made so many mistakes it took more time to fix the returns they worked on than if we just did the whole thing ourselves. We did not run the outsourced returns through Gruntworx.

VPNs are slow and clunky which might have been a very small part of the problem. Unfortunately, the real problem was quality. The outsourcing company failed on many levels. Their preparers were very green. If we would have rolled out the program the cost per return would have been favorable, but not nearly as generous as Gruntworx.

Due to lower profitability, security issues, time constraints, quality of work and incessant errors, I do not recommend outsourcing tax returns at this time unless you consider cloud services, which we will cover next.




Cloud Services

Cloud services come in a variety of flavors, just like outsourcing.

I’m a big fan of cloud computing. I can work anywhere I have an internet connection without logging into the office system with a VPN.

Cloud computing can get expensive, but compared to the cost of IT services and servers it is a steal.

Never touch an accountant’s coffee cup! Here you see my mug protected at my gym. Like I said, I can work from anywhere. (Sure beats another round of power reps.)

My office is undergoing its largest cloud build-out ever. Drake Software allows us to host their software on the cloud. (Don’t quote me, but I think the cost is $600 per year for the first user and $300 for each additional user. I’ll update when I get to the office or discover a different price.)

There are several benefits to hosting Drake on their cloud. The biggest benefit is working from home is easier. No more driving to the office on weekends.

Another benefit with hosting the tax software in the cloud includes outsourcing again. Some outsourcing firms are outside the U.S and that opens a host of problems. My experience shows how U.S. based outsourcing firms can also fail big-time. But with the tax software hosted in the cloud I can hire qualified employees from anywhere and train and supervise them on my terms!

This blog brings in complex tax returns most tax offices only see periodically. Finding qualifies tax professionals has been my greatest challenge and it’s wearing me out. Cloud computing will open the frontier. I can hire awesome tax people from around the country. There is no reason to house the entire team under one roof!

I sound optimistic because I haven’t had my head slammed in the door yet with cloud. It is a work in progress with lots of opportunity. Best of all, no VPNs!

Finding team members who I can vet and train is a powerful advantage only cloud services allows me to do. Training my team is the only way to assure the best accountants serve my clients.

Final Notes

Business is always an on-going work in progress. What worked a decade ago doesn’t today. Successful business owners are constantly reinvesting their company.

The ideas I shared today are the ones I felt were the most important. I’ll publish more on this in the future as my firm evolves. If you are considering tax preparation as a seasonal side gig consider the information above. It makes a difference.

Tax services is a profitable industry, but has its risks. Current tax professionals can glean what they need from the proffered information. At minimum it can get you thinking about your business and the various ways you can increase the bottom line while keeping your sanity.

Stay tuned.



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QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you.

Keith Taxguy

5 Comments

  1. WCRN on May 17, 2018 at 7:55 am

    Great work! Learning and practicing continual improvement is a great joy.

  2. John McCarthy on May 20, 2018 at 8:01 am

    We have implemented several of these solutions in our practice. We used Gruntworx the past two tax seasons and made the switch from Drake (which I still like) to Ultratax. I feel like it was a good switch. Ultratax is a more robust tax preparation program and is able to handle more complex returns (less overrides) than what I was experiencing in Drake. I still miss the simple Drake interface though.

    Ultratax can also be hosted in the cloud and I had workers in TX, AR, ND and OH this year. We worked with clients in 35 states this year, all through the use of client portals and video conferencing. Only about 10 of our 450 returns were local hand delivery or mailed physical copies. Way different than when I started in public accounting 20 years ago.

    • Keith Taxguy on May 20, 2018 at 9:23 am

      The industry has changed a lot over the last few decades, John. It blows my mind how radically different things have become. In my wildest dreams I would never have guessed my firm’s footprint would be so large when I went full-time in 1989. At least it was never boring.

  3. David on November 22, 2018 at 2:53 pm

    Do you have an update on how the Drake Hosted has worked out for you? As a fellow Drake user, it would be good to hear your experience. We still use the desktop version but will probably get to some hosted software within the next couple of years.

    • Keith Taxguy on November 26, 2018 at 4:29 pm

      David, I decided to forgo Drake Hosted since I have plenty of internal capacity. Cost was an issue; the ease of using a VPN to manage the same thing is another. I can still work from home and get much more than just Drake; it’s like sitting at my desk while on the couch.

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