Why Your Tax Season Business Model Is Probably Flawed

One of the beautiful things about being in the tax industry is that we have the flexibility of choosing any number of business models we’d like in order to create the lifestyle we desire. Very few professions permit this level of work/life balance.

For example, there is the business model upon which nearly the entire retail tax preparation industry is based: The purely seasonal model. In this model, the business is literally only functional, with the doors open and staff and clients in the office, for a few months each year. For 2015, this means generating nearly every dollar of revenue between Jan. 20 and Apr. 15. This business model allows even the solo practitioner to earn a comfortable six figure annual income with only a few months of work.

The greatest thing about this business model, in my mind, is that it allows the tax professional to spend the rest of the year (e.g., 6 to 8 months) doing something completely different, and far more awesome, such as sailing the south Pacific.

A variation on this business model involves a small year-round business, with a significant seasonal swelling of staff, clients, and revenue. This business model is great for the practitioner that wants to work year-round, but doesn’t want to work full time year-round. This is the business model that the majority of tax professionals I speak with actually desire. This model allows the practitioner significant flexibility for multiple, short vacations nearly any time of the year, and allows one to set their own working hours nearly at will. Revenues in the off season can be dialed up or down as desired simply by turning marketing campaigns on or off.

You’ll notice that a key element of these business models is choice. As a business, it’s completely up to you to select how you want your business to operate, and how much time you want to spend operating in it and when.

For most of the past four years that I’ve been in private practice, with the exception of the first few months of startup, I’ve operated largely part-time, but year-round, with no tax season, offering only one service (tax resolution). This business model worked well for me, as it allowed me to travel the world while still representing my clients and making a good living. This business model also has some flaws, particularly the lack of client retention, but I accepted those flaws in trade for having the ability to be forever traveling.

For most tax professionals, however, especially solo practitioners, a significant flaw exists in their business model, and they don’t even know it.

Here’s the flaw: Tax season represents the bulk of annual revenues, despite working full-time, year-round by choice.

I’d like you to think carefully about this, because it’s important. Notice that I’m not referring to the second business model mentioned earlier, where a large swelling of temporary, seasonal staff is brought in. I’m referring to the full-time, year-round solo practitioner, or near solo. This is the small business that might have a single part-time or full-time assistant or receptionist, and maybe brings in one additional seasonal tax preparer to help out (but mainly busts through tax season by working an insane number of hours).

This is the business model for the bulk of independent tax professionals in the United States, Canada, and Australia. From anecdotal evidence, I also presume it represents the bulk of this blog’s readers. I figure that there’s about a 70% chance that I’m talking about YOU.

If you want to work full-time, year-round, then great. That’s your choice. But here’s what’s wrong with this equation for the vast majority of independent tax practices: When 1/4 of your work year represents 3/4 of your annual revenue. If this is what your business looks like, then you have a fundamental flaw in your business model.

From the perspective of an 80/20 analysis, if your business looks like this, then you’re doing something wrong during the other 3/4 of the year.

Are you in the office 40 hours per week during the “off season” (tax work is only seasonal if you choose to make it so), but don’t have any billable hours? If this is the case, then you have serious problems on your hands, I’m not going to sugar coat this. If you’re just doing busy work or hanging out on Facebook all day during the rest of the year, then you have significant time management and marketing issues that you need to address.

Do you have plenty of billable hours during the rest of the year, but your revenues are still incomparable to tax preparation season? Then you need to re-evaluate your pricing for your other services, such as bookkeeping, payroll processing, tax resolution, audit representation, etc.

Many tax professionals tell me that they’re thrilled during tax season because they’re hourly rate skyrockets. Don’t they realize how ridiculous that sounds? The value of your time shouldn’t be based on the time of year. If you average $175 per hour during tax season, but only charge $50 per hour for taxpayer representation during the rest of the year, then all you’re doing is shafting yourself and devaluing your services. If this is what you’re doing, take a moment to recognize the fact that it’s your own fault, and then fix it.

I could keep going on an endless diatribe about this, but I won’t. I’m sure you get the point. Your business model, how much you work, or even whether you work certain months, is totally up to you. This entire post is geared towards those folks that make the choice to work full-time, year-round. If that is your choice, then your revenues should reflect that — you should not have a massive February-March spike like far too many tax practitioners do.

If you’re in this situation, know that it can be fixed. You can utilize time management strategies to make better use of your time. You can implement marketing campaigns to attract clients for other services during other times of the year. You can adjust your pricing to reflect your value in the marketplace.