Several years ago, I worked with a consulting client that had a unique way of finding other tax practices to buy. This one strategy was the primary way he had grown his own CPA firm for nearly 20 years, entirely via acquisition.
His acquisition strategy was brilliant. Masterful, even.
But what he did after the acquisition was…umm… not so brilliant.
I guess there’s no point in pulling any punches here: It was downright dumb.
What was so dumb about it?
After acquiring the other tax practice, he would more or less treat that practice as it’s own business.
I don’t mean a separate company — that would have been even worse. But he allowed each of those tax practices to live on as a distinct “silo” within his own tax firm, instead of fully absorbing that tax practice into his own firm.
This created a lot of operational inefficiencies. Duplicated overhead. Software redundancy. Workflow nightmares.
This CPA thought he had a valid reason for doing things this way. His reasoning was that by keeping everything the same, the clients wouldn’t leave. He didn’t want to upset the apple cart, and destroy any of the enterprise value of the tax practice he had purchased.
The reasons why this thinking is irrational are beyond the scope of this email. What I really want to focus on here today is the absolute worst problem introduced by this entire way of doing things.
Yep, fees. Instead of bringing the acquired clients on to his firm’s fee schedule, he continued to honor the fee schedule of the old tax practice… Forever.
This CPA, with more than two decades of experience, in a small but regionally prominent city, was doing long-form 1040 returns for $35… $50… $90… $150.
Those prices were ridiculously low even for 2014.
And we’re not talking just 5 or 10 returns, either. Nay, nay. We’re talking over 2,000 returns a year at these prices.
He constantly complained about how he wasn’t making any money. His take-home income was abysmal, despite having thousands of tax prep clients. But even after showing him regional tax prep fee survey data… Despite doing a mystery shopping fee survey on his behalf in his local city to show him what local market prices were… Even after analyzing his own records to show him how much money he was losing doing returns for many clients… He absolutely refused to raise his fees.
This was the engagement that kinda “broke me” from doing this type of consulting work. It was ridiculous, and exasperating. Eventually, I had to terminate the engagement.
I hope that you see some obvious business lessons from this that you can use in your own tax firm.
If you already know that you need to raise your fees, but you’re not quite sure how to go about implementing that fee increase, then you’re going to love the February 2 workshop that we’re doing inside TaxFirms.com as part of the “accelerator” program. We’ll be focusing on exactly this topic in February:
- how to assess where your fees stand
- options for packaging service bundles for greater value
- crafting a plan for implementing fee changes
- how to communicate fee changes to existing clients
If you’re not yet a member, simply visit https://TaxFirms.com to get started.