Transcription
This accounting firm owner is running $1.1 million a year with just three employees and pulled over $400 grand in profit. Buddy, she is living the accountant's dream, but behind the scenes, overwhelm, working too much, and believe it or not, missing even bigger profit opportunities.
My name's Jason. I last ran a $5 million accounting practice. And in the past 2 years, I've helped over 2,000 accountants to run more profitable firms. This firm owner, they wanted to stay anonymous, but I got the goods. This is their actual financial statements. And what I found, man, it it was too valuable not to share.
I'm going to show you exactly what's holding this firm back. Holding it back. They're making $400 grand. I know. And the changes that could genuinely double the profit of this firm without hiring a single new person. We'll walk through the core problems they're struggling with, some simple fixes, and the exact steps that any firm owner can apply. Because owning an accounting firm, it ought to mean freedom, big profits, but also a life outside the office. Let's talk about how to do both.
First, let me show you how this firm is already crushing it. Like, props to them. So, they do $1.1 million a year in revenue, just over $440 grand in profit last year. They do tax work, but frankly, everything we're discussing here applies to bookkeeping firms as well. They're in a tier 2 market, but they've got clients all over the place, and just three full-time employees with five seasonal offshore staff. I We're going to talk about this, don't worry. Now, 90% of the clients are in real estate, so they're kind of specialized, but real estate's still pretty broad.
But let's get into their pain points. One, they are over capacity. They've got too much technical work. Coming back to the owner, and they desperately need a tax reviewer, but quote, "Any human that can do the work is running their own show due to the insane amount of work in the space." Would you actually agree with that? They say they have an insanely high bar for quality, and that's gotten hard to sustain, but the owner would happily do less of the technical work if they could.
Now, for what's going well, besides that, you're clearing $400 grand a year, they love the software and the tech stuff, and they love time spent on bizdev talking to client prospects, even though quote, "They have no capacity for new clients and should not be talking to them." If you're struggling with capacities, I know a lot of firms are. That's actually what we're going to tackle first.
But last, I want to show you their tech and workflow, how they got here. They're using Canopy for practice management, Sora for gathering tax info, and sending out automated reminders, tax prep happens in Lert, and that's about it. Bookkeepers watching this are like, "Must be nice." So, they use Canopy to send a kickoff email for each tax project, then push out a request list to each client from Sorban. The flow of the projects is tracked in Canopy, but again, they're leaning hard into Sorban's automated reminders. Those reminders follow up with the clients until all the info is in.
Once it's in, an admin does an initial PDF workpaper prep. The returns go through an internal review process before coming to her, the business owner, for a final review. Kind of a different onshore offshore setup here. We're going to talk about that and how to solve the review bottleneck. But returns are delivered to the client from Canopy, pushed for e-signature from LERT. They're invoiced from QBO and then they submit the e-file. They're doing some tax advisory work, but today that work is solely falling on the shoulders of the business owner. They don't track time. They quote a flat fee upfront and they value price their work. But this is where the biggest opportunity is. Wait until you see the pricing. I mean it when I say we are going to chart a reasonable path to doing $800 grand a year with the same number of employees. Land of Lakes. I know it's not a bad time to run an accounting firm, gang.
Okay, but let's start with capacity. This is the biggest trap for accounting firms facing capacity constraints is they stop taking clients. They stop focusing on business development when the reality is your firm will ever be as good as your client list because every firm is made up of all sorts of different clients from your A players, the clients that click their heels when you send them a big old invoice and you're like, "I didn't think you were going to pay that, but okay," to the D clients who you like, "Write down," and they're still like, "Oh no, private school for Jimmy this year, I guess." And you know what the solution is, right? We're at capacity. The answer's pretty obvious. We got to cut the turds. Got to let those C and D clients go and figure out how to get the next A client. And if we actually get into the habit of letting those C and D clients stay for too long, the focus of our business becomes doing more as a band-aid for doing better. In fact, the folks out there that are running like solo accounting firms that have the constraint where they're never going to hire. That's almost a more pure form of the business, right? Because we can hire to cover up our bad decisions. Well, if I could just find some good help for once, why are we taking in work before we even have the people to do it? The day we stop taking in clients, and this is something that many of us wear with pride. Oh, we stop taking new clients. Yep. We get so many referrals. The day you stop taking clients, your client list stops getting better. Got to rip that band-aid off and make room for the better work. Because, as we're going to get to in the pricing conversation, we've got some awesome opportunities here to run an even better firm.
But first, let's get into staffing because they've actually got a really interesting setup here. You've got the owner, you've got a full-time onshore admin, an onshore tax manager, and then third, a full-time year-round offshore tax pro, but that's it year-round, just those three employees and the owner who's doing a whole lot of work. But then during busy season, they pull in the equivalent of four to five offshore tax pros from a contract group. This is a group that you're basically buying tax returns from. The group handles the staffing. So, you don't really work with these people like directly as part of your team. You're just chucking tax returns over and you get tax returns back that you then need to review. That is one way of doing offshoring. Actually, not the way that I recommend. But if you look at this org chart just proportionally, you got a whole lot on the bottom and not a lot on the top. I mean, that's just asking for a joke, right? Especially if the onshore tax manager isn't able to give the final sign-off on work or do tax advisory for clients. And it sounds like this is the case. That's putting a lot of work on the firm owner.
But, I mean, to be clear, let's just say it again. The firm's crushing it. And there's a world where they could just scale back a bit, still make $400 to $500 grand a year and take foot off the gas. But there's also a world where we modify this just a bit to make this firm even more profitable. And it's important to me that you see this because you realize how much optionality you have and actually how close many of us are to running vastly more profitable firms.
But elephant in the room, let's talk offshore hiring because it's becoming even more of a thing every day for small firms as as the world just kind of gets smaller. But a misconception that I think this firm may be leaning into is that offshore hiring is just for junior level work. And it's I think it's because we talk with like offshore support reps just day-to-day. We almost like project onto offshore folks that that's all that they can do when I actually know a number of firms who now have longtime offshore staff who are their most senior technical people. And I mean it is dumb to have to say out loud but you can employ anyone around the world to do this work. The one constraint is usually going to be who you're going to have be client-facing. They are humans just like people who live in the land of the free. But this client-facing constraint is what makes it so important to be building both onshore and offshore talent pools. You know the whole conversation around like doing the rug pull on a whole team and offshoring it like there goes your future talent pipeline. That is for sure an issue and it's why in small firms it makes sense to be doing both.
And when it comes to the bottleneck of review, here is the very best tip that I can give you because most firms, this is their bottleneck. It's why everybody's on the market for a senior like tax review tax manager. The best trick I can give you is leaning hard into grading tax returns by difficulty. And this is because it gives you a logical like sequence through which you can graduate your preparers and your reviewers. So just from a high level, a quick example of this, let's say our 1040s come in at six levels of difficulty. Level one, it's government forms only, W2s, 1099Rs, the easy stuff, basically data entry. Level two, we pull in adjustments to income. Level three, we pull in itemized deductions. Level four, we pull in schedule E. Level five, schedule Cs. Level six, everything else, pass-throughs, multi-state, the hairy stuff. Every member of my team has a level up to which they're allowed to prepare, but also every team member reviews one level down and and down from there. And the best thing this does is remove the mystique of like who's allowed to be reviewers and who isn't. If you like if you're a senior now, remember the first thing you reviewed that went out the door with no one else like checking it? That's a scary day, right? It shouldn't be that way. This approach makes review everyone's job, but then gives you a much more logical progression through difficulty. Because building an SOP or a process for how to review a tax return or how to prepare a tax return, that feels impossibly difficult, right? But building an SOP to prep or review a level one return, you can imagine doing that. It's basically data entry, right? And that's where you start. And once you learn how to do that, you learn there's actually a way to do level two, there's a way to do level three. This democratized review inside of my accounting firm, I've now talked with a lot of folks that do something similar. So, it can help with that review constraint right away. But the bigger thing it does long-term is it upskills your people faster. It shows them a track to doing more technical work. And before you know it, those junior folks start looking a lot more like seniors.
Now, I've been teasing it. I want to show you how to get this firm to $800 grand a year. But first, we were just talking about offshore employees. And there there are frankly so many offshore groups these days, but only two of them I recommend because at this point, I know probably tens, maybe even hundreds of firms who happily use them. This video sponsor, it's one of them. Roll the music. It's Team Up time. Team Up. It's Team Up time. Hey, Team Up. They're here just in time. Running a firm, it's hard enough, but hiring staff, it really sucks. Except for Team Up, they make it easy. Easy, easy, easy peasy, easy squeezy. I mentioned this earlier. The right way to hire offshore staff is for them to come and work 100% for you. They're just another member of the team. And Team Up helps you hire those talented tax pros direct in the Philippines. >> Your next hire, they're waiting for you. Get with Team Up. They're see it through. Offshore spookies, your IT questions. Team Up's here for your staff and indigestion. Most firms now we're running distributed teams, right? Whether that team member is across town or across the world has never mattered less. Now, we have some rules for offshore work in the US. If we're doing tax work, we got to disclose 7216. But I did it myself in my firm. It's not a reason to not offshore. It's a reason to disclose. But rather than staying blocked by this in perpetuity, Dr. Team Up who's helping firms work past this literally every week. Great job. Good job, everyone. Wow. Okay. Learn more about Team Up at the link in the video description.
All right, back to pricing. The firm's profiting over $400 grand a year. So, you got to think that they'd be charging a lot, right? Check this out. Entities average $900 per business return right now, and they're quoting $1,200 for new business returns. By comparison, TurboTax is charging $1,750 for a business return. That is federal only. And they don't fix your bookkeeping, which is like two-thirds of small business tax prep work, right? Fixing the books. You see the opportunity yet?
So, some quick math. At $1.1 million in revenue last year and $442 grand in profit, that is a 40% margin firm. And for a single owner firm who's effectively using offshore staff, but still doing a lot of work themselves, a 40% margin, believe it or not, that can actually be better. We can improve that. I run a small accounting firm alliance, realize got about 600 firms in it. I would say 40% for a firm like this is about average, meaning there's room to improve. And you you almost feel ridiculous saying this out loud, but this is the reality of running firms in 2025. There's some some meat on that bone, buddy.
Now, they do 1040 work as well, but only for business owners. On their P&L, revenue is split pretty much 50/50 between entity and 1040 work. And 1040s come in between $750 bucks and $1,000 bucks on average. But even if we only looked at the entity part of the business where these returns average $900 per year right now, if we got the average up to what TurboTax charges for federal only, no bookkeeping cleanup, we'd be going from $900 bucks per return to $1,750 per return, another $850 in profit per return. And the way the math works out with entities being half of this firm's revenue, getting the entity average to $1,750 per return would take the bottom line profit of the firm from $442 to $961 per year. Meaning we could afford to still lose 20% of clients and profit $800 grand a year in a single owner firm with three year-round employees. And those capacity constraints, you're doing 20% less work now, right?
Okay. So, how do we get those entity returns to $1,750 bucks? For one, we stop the bleeding. We never let another client in the door unless we're charging $1,751 or more. And it's not a thing your brain can just do overnight, right? We got to learn to confidently talk about the market value of what we do. And that market value, it is more than $1,750 for a business return. You go to TurboTax, you're talking with a stranger once. You're not building a relationship. They're not going to be there when you get a tax notice. They're not fixing your books. It's like that's such a different experience and we need to learn how to communicate that to our clients. The place we fill in the market. So, first when new clients come in, we just have a higher quality conversation. They come in at a higher price. But then we start working through some price increases. And like this is hard. Like I don't want to make this sound trivial, especially in a single owner firm where you have a relationship with almost all these people. But our reality for what we're worth has to somehow be reset around the market price for this work. And you can do that itty bitty, like a tiny bit every single year, or here's what I would recommend is you find the fastest track to actually believing you're worth that.
So, here's here's the best advice I can give you for how to do this. We got to recognize there are firms out there who are laughing at all of the numbers we're throwing around here. The accounting firm ecosystem is a food chain. For every little baby firm before you on the journey, there's another monster firm that is ahead of you on that same journey. Right? But a funny thing happens when you surround yourself with people for whom what you're trying to attain is their normal. When you spend time with those people, it is just a matter of time before their normal becomes your normal. This is something we can actually reverse engineer. When you hear about somebody charging $10,000 for tax advisory work, right? If that's just unthinkable to you or or even feels morally wrong, I practically guarantee you if you spent time with the folks doing that every week, every month, it would just be a matter of time before you were charging $10,000 for tax planning work. So, how do we do this? Well, it starts with your network. It starts with building relationships with other accounting promoters. Literally, I in the comments of this video, wherever you're hanging out, social media, whatever that looks like for you, uh, in-person events, find the group of people for whom what you're trying to get to is their normal. It's kind of like that the whole thing that where like a product of the 10 people you spend the most time with or something like that. This is a thing that we can reverse engineer. Can't recommend it enough. This fundamentally changed how I ran my firm once I had some other relationships with other firm owners. If this is a hard thing for you to do, if this is a scary thing for you to do, that is the whole point of the accounting alliance that I run. It is still my only business. Got about 600 firms in there. If you want help, join that alliance. We'll have you in those rooms within 30 days. We'll link more info about that alliance realize in the video description. And if you want to go deeper on this evolution of a firm through price increases. Let me point you to a similar example where we got even more into the weeds on the math cuz it's actually even juicier. Like you're cutting your bad paying clients and you're adding good paying clients and it means you're closer to a vastly more profitable firm than you may realize.