Broadening Your Tax Know-How Brings Opportunities
Every article that has to do with the accounting industry will tell you to specialize in a particular industry. I am here to tell you that such advice is simply wrong. Why? There are many reasons.
One of which is if you specialize in one industry, and that industry has a downturn, you are going down with it. The key is to specialize, that is to say, learn the various nuances of many different industries and the particular tax implications of those industries and you will not only gain a vast knowledge of taxation, you will become indispensable to your clients.
I remember a quote that talks about this, and I want to share it with you: “It doesn’t matter about the amount of zeros in your paycheck, it is when you become indispensable that you have made it.”
Knowing the various taxation issues of many industries will cause you to do a lot of reading and studying. It will take some time, but you will become indispensable to many different clients.
I had a client come to me about a year ago. The company designed video games. Their previous accountant told them that the labor that they were paying to design these games had to be capitalized, until such a time as the video game was released. That would be true, if their company wasn’t a video game company. But because all this company did was design these games, the labor costs were not only deductible, they were subject to the Research and Development Tax Credit.
How did I know this, and the other accountant didn’t? Because I spend the first couple hours of my morning reading tax law changes, Tax Court cases, and everything else to do with taxation.
Even if I don’t have a client in the industry that the change or particular Tax Code applies to, I read the information because you never know when you may need that information.
I admit that I am a tax nerd. My favorite thing in the entire world is finding something that appears to have no solution and figuring a way around it. That curiosity has caused me to learn several different aspects of the tax industry for various companies. Not to mention that I have found that all of this work (and it really is a lot of work) and not to mention a lot of reading, all of these have set me apart from the rest of the accounting industry. This has positioned our firm to be able to do a few things that others can’t.
First of all, we can set our own prices, which are higher than another accounting firm, because I can simply juxtapose the fee to what the client is saving in taxes. I want to make something clear with the previous statement: I am not setting my fee based on the tax savings, because as we all know, that is clearly a violation of Circular 230. What I mean is that one accountant will charge $200 a month for accounting services and $600 for the corporate tax return. I can charge double or triple those fees, as long as they are less than the tax savings the client is receiving and the client will be able to justify the higher expenses.
Unless you are dealing with a price shopper or someone who is ignorant, then most clients will see the value in what they are spending with you because you are indispensable to their business. They have already been to another accountant and grossly overpaid their taxes.
I can certainly understand someone who legitimately can’t afford our fees. However, where I get upset is when someone is making a lot of money when you have just showed them where you can save them $75,000 a year in taxes. They then want to haggle your fee.
I don’t negotiate my fees, haggle about them, or anything else. I simply explain that they can continue paying a much cheaper fee and overpay their taxes, or they can come with our firm. I’ve shown them in black and white how much I can save them if they take various steps and make some changes to the way they do things. If the client doesn’t see that, then I can’t do anything else.
My advice of having a broad knowledge of the tax implications of various industries doesn’t mean that I don’t have certain things that interest me more than another. For instance, estate planning fascinates me, so I spend a lot of time reading about it. Real estate taxation for investors is interesting to me, as is cannabis, technology firms, start-ups that are positioning themselves to go public one day, structuring entities, asset protection, representation, and others. These are things that I enjoy. You can say that I specialize in various industries, I suppose, but in reality I have broad knowledge.
I often joke with my wife and business partner that I earned my MBA the day I went into business for myself. I went on my own, away from a partnership where I held 25 percent, five years ago. That partnership’s speciality was tax compliance work, but I found myself being unfulfilled and wanted to do intensive tax planning.
That’s not to say that compliance isn’t important, but I wanted to spend my time doing work that I considered fun. When I left, I took a pretty good amount of the clients with me. However, very early on being on my own, I raised fees significantly because I was doing other things for these clients. As a consequence I lost about 60 percent of my client base.
It was after tax season, and I remember when my monthly income was $1,500. The money made during tax season, the partnership made, so I didn’t have it to supplement my loss of clients. I had about $20,000 in a retirement account that I used to build the business and to live on. I had to make this amount last for five months until tax season came. I had to buy software, computers, get some kind of office, and do every job myself. This taught me more than paying tens of thousands of dollars for an MBA. This was real world stuff, and the stakes were high, so every penny that was spent had to be carefully scrutinized before any purchase was made.
During this time, I tried to sell other services to current clients and advertise for free. My wife and I became business savvy, and in about three months, we started getting more clients who were willing to pay us more because they saw what we brought to the table. This exercise was a blessing because it gave me another skill — that I could sell how to start a business.
For example, I will see a pro forma from a client that is either asking investors for money or trying to get a loan. I will charge a retainer for a consulting fee and get the client’s start-up expenses so low that I have been offered percentage ownership in businesses and a salary to be the company’s CFO.
Some of those I have accepted and others I haven’t. This has created a passive source of income for us year-round. The workload isn’t that bad because I have formed a team of other professionals, equipment sellers, investors, banks, and every tool that I need to make my job easier. With all of the referrals I make to these people, I get a pretty good discount.
The point that I am making is that I see advertisements all of the time from this company and that company stating that they can teach you how to get clients who will pay large fees for a cost of course.
I am here to tell you that if this person was so successful and could actually get all of these clients for large fees, then why in the heck wouldn’t they just do that and not tell other competitors their secret?
That’s not to mention that every article that you will read about how to start an accounting practice will tell you to specialize in an industry. Both are bad advice and it could potentially put you out of business.
What I am trying to convey is that there really is no right or wrong way to be in this business. And if your main concern is the amount of money that you will make, then move on to something else.
There is never a time where I do something just for the money. I do what I love and am passionate about, and the money follows.
You might also be interested in
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as...