Running a tax business is like running any other business: one misstep and you can find yourself closing your doors for good. It’s not enough to be smart, to understand your trade, and to work hard; you’ve also got to make good business decisions, as well.
One of the best ways to stay in business is to understand what pitfalls you might face and prepare for them.
Here are some of the most common mistakes tax professionals make in business, and a little bit about what you can do to avoid them:
- Not understanding the local market. Just because you’re great at what you do doesn’t mean there are people out there willing to pay you to do it. The fact of the matter is that running a tax business can be a bit tricky in some markets. If, for example, you’re a tax professional who specializes in large businesses but you’re in a small town with only one or two large businesses, you’re going to have to rethink your overall business strategy. Likewise, if you’re in a larger city and want to market to individuals, realize that you’re going to be only one of many fish in the sea. You need to have a good sense of the real demand for tax help in your area, as well as how it’s being met by your competition.
- Poor record keeping. This isn’t just a problem that plagues clients. Tax professionals can also fall into this trap. The same lessons that you preach over and over again to your clients about keeping receipts and tracking mileage apply to you, as well.
- Poor customer service. Some tax professionals believe that their job is all about computing taxes. The fact is, it’s more about providing good service to your clients. If your clients believe that you’re working hard for them and if you’re able to help them do things they couldn’t otherwise do on their own, then you’ve probably got a client for life.
- Reliance on a relatively small number of clients. Many tax professionals struggle along doing individual tax returns and occasional consulting right up until the time when a larger or more successful business hires them to do regular work. There’s always a sigh of relief; the struggle to make ends meet starts to disappear. However, this is all an illusion. If your business depends on two or three main clients, you’re at risk. If two of those three clients fail, your business will most likely fail as well. Make sure you have a diverse client base. In an ideal world, no one client should account for more than about 25% of your revenue; if they do, you’re almost better off getting a job instead of running a business.
- Growing too fast. This is an easy mistake in the tax business. As you’re certainly well aware, most of your work will be done during tax season. It’s always a bit of a guessing game at the beginning of the year knowing how many clients you should take on. If you take on too many clients, you’ll find that you can’t really devote the necessary time to any of them. You’ll wind up with a lot of unhappy clients, and growth won’t be your next problem – closing will be.
- Doing it all on your own. There is always the temptation to do everything on your own when you run a tax business. The fact is, however, that the best tax businesses will often turn to others for help. Whether you have an office assistant, a junior partner who’s learning the tax trade, or even if you have someone handling your sales and marketing, the fact is that you need to offload certain portions of your job. At a minimum, you might consider seasonal help that will let you devote more time to your clients during tax time.
Over 30% of businesses close their doors within one year of opening. Extend that out to three years, and the number rises to 50%. At the 10-year mark, only 15% of businesses are still operating. If you want to be one that survives, don’t make these mistakes.