There are two types of tax pros that run their own shops: Small business owners and entrepreneurs.
What’s the difference, and why does it matter?
A small business in our industry, or what I’ll commonly refer to as a tax practice, is forever centered around the tax professional that started the practice continuing to personally deliver services to clients. You may hire staff, but in this business model, you’ll always be client-facing, doing technical work. As a result, the potential size of your tax practice, in terms of revenue, is limited by your own capacity for delivering services. Your revenues may be growing, but it’s doing so relatively slowly and there is a hard cap on what you can generate.
In contrast, an entrepreneur in our industry is building a tax firm. In other words, they’re building a company that is inherently bigger than themselves, capable of serving clients and generating revenue far in excess of the work product that the entrepreneur is capable of personally delivering. For the accounting entrepreneur, growth and expansion are the primary goals. This inherently means that the entrepreneur eventually stops doing client-facing technical work entirely, because it’s simply not the best use of their time if they are genuinely focused on growing and managing the firm.
If you have an MBA or if you’ve read any of Michael Gerber’s E-Myth books, then nothing I just wrote is a big surprise. You already knew this.
But, there are two other aspects of this that I’d like you to consider:
- Tax practice vs tax firm isn’t really an all or nothing dichotomy. Rather, entrepreneurship is a continuum.
- Where your business sits on that continuum is a choice that you can make at any time.
Here’s what I mean by an entrepreneurial continuum…
- At the most basic level, there’s the tax pro preparing tax returns for 20 friends and family at their kitchen table, as a side hustle from their day job.
- As we progress up the continuum, maybe this tax pro leaves their day job and starts a tax prep practice, growing to 200 returns within a year or two.
- To grow more, this tax practice needs to hire additional preparers, but the owner still reviews all returns and prepares a few complex returns.
- As growth continues, additional services are offered, such as tax planning, tax resolution, and financial planning. These higher level services are conducted by the owner, and all tax prep work, including review and return delivery, is handled by staff. Prep-only clients never even meet the owner.
- As the business progresses along the continuum, the owner has to hire additional licensed staff (EA/CPA/JD), to handle the resolution work and tax planning, but the owner still does high level investment management for affluent clients. All the owner’s remaining time is spent on management and growth of the firm.
- Further along the continuum, the firm has grown to the point where the owner is no longer doing any client work. Absolutely none. They are the CEO of a company now, focused squarely on growth via marketing and maybe even acquisitions.
- At the peak of the continuum, the firm becomes a company that will outlive the founder. There are multiple owners, such as partners, and additional layers of management. This is your traditional IPA 300 firm. The company may have even morphed away from traditional tax and accounting services altogether, and become a specialty consulting firm or created other products. Heck, it could even become a publicly traded company.
The bullet points above illustrate just one potential growth path on the entrepreneur’s journey. There are obviously others.
The most important thing for you to understand, though, is that embarking on the entrepreneur’s journey is a choice. It doesn’t matter whether you’re a brand new unenrolled preparer or a combined CPA/JD with 30 years experience — there is always a choice to be made regarding the type of tax and accounting business you want to run.
If you want to operate a smaller tax practice forever, that is a perfectly fine choice. Seriously, there is nothing wrong with that. I ran a boutique solo tax practice for several years, never thinking I wanted anything bigger. I was very content with my income and the lifestyle it afforded me with a part-time work schedule. It was great.
If you want to operate a massive tax firm, public accounting firm, or consulting firm, that’s perfectly fine, too. I applaud your decision to take the entrepreneurial path, and take on the challenge of growing a larger company. I eventually chose the entrepreneurial path myself, and started a software company that services the accounting and legal industries, along with a training company that required bringing in a partner and other external resources.
Wherever you want to be on the entrepreneurial continuum, there is a place for you. Pick your destination, and go for it.
If you’re so inclined, I’d like to invite you to join me for a 12-month guided implementation program to help you get your business to where you want it to be. Each month in 2022, we’ll explore one of my 12 Big Ideas for a More Profitable Tax Firm together, along with exercises to help you prepare and execute a plan for growth. This is the core program that the brand new TaxFirms.com is built around.
To learn more and reserve your place in the program, go here –> https://TaxFirms.com
To your success,
~Jassen Bowman, EA, CTR, NTPI Fellow