Tammy Tardy was an average tax preparer, who owned an average tax preparation firm. Every tax season Tammy met with a hundred or so tax clients much like many of us. Tammy managed her workload using the piles of files method. After a client meeting, she put the file aside, knowing she would get to it shortly.
Of course, twenty meetings later, she had no idea what she should work on next. So she just picked up a file from her office floor and began. She felt that it didn’t matter which returns you work on when you are overworked and in a hurry. There’s a fixed amount of work to get done by April 15th, and you just jump in and do it.
Tammy was wrong. Tammy’s clients began to call and call and call. After a couple weeks, Tammy was spending so much time on the phone that she had no time to prepare returns. This is “What’s the status of?” purgatory.
A client will call his preparer when he hasn’t heard from the preparer after about two weeks. I know this concept well from twenty-six tax seasons of sometimes painful experience. I can even predict which clients will call next.
I wish I could write that Tammy’s story had a happy ending, but it didn’t. Tammy worked April 13th through the 15th with almost no sleep. Clients called and offered pithy advice like, “Don’t you know this is April 15th?” But by midnight on April 15th, she had barely dented her workload.
Many of Tammy’s clients left, disgusted that their returns hadn’t been completed in over a month’s time. After a few years, Tammy’s firm was no more.
Working on the right projects at the right time is key to a successful tax season. Tammy failed, because she ignored this and had no way to do it anyway. Most small tax preparation firms live in continual “What’s the status of?” purgatory. They work on returns based on which clients are screaming the loudest. In the very near future, these firms will join Tammy Tardy’s practice in history.
Firms, that rely heavily on 1040 clients, face a rapidly commoditizing market. Turbotax disrupted the tax preparation marketplace in the 1990’s. Turbotax and other DIY programs killed the Harry Homeowner tax preparation market. Remember all the part time preparers from the late 1980’s and early 1990’s? Harry Homeowner killed off the part time preparers when he started to prepare his own returns using Turbotax. The sweet spot of the tax preparation market moved upscale to the more complex returns part timers couldn’t handle.
Commoditization accelerated with the adoption of tools like Autoflow from CCH, that read tax data directly from source documents. Preparers, whose primary talent involves data entering mass volumes of data, will soon join the part timers in extinction. Soon we can expect electronic data feeds to replace scan and populate tools like Autoflow.
There are only two ways to prosper in a commoditizing market: differentiate or become a highly efficient producer. Differentiation in the 1040 market is a delusion. The average firm can never differentiate, because the average firm is well….average. As the average firm changes, so does the average. Of course none of us is average. We’re all in the top 10%, except that’s not the way the math works. Average firms will remain on average, average – and undifferentiated.
Ruthlessly efficient workflow management offers the chance to wring another ten years of profitability out of the 1040 market. But what really is workflow management? Many vendors claim to offer it, but in reality they offer only small pieces, like portals or scan and populate tax preparation.
Workflow management starts the moment a client contacts you and lasts until you get paid after e-delivering a finished 1040 tax return. You need a well designed and low cost process for each step in the chain. Here’s an example of the poorly designed process most firms used in the past and far too many still use today.
First, a client comes in for a tax meeting, where the preparer spends thirty minutes to an hour reviewing every source document in detail. Next, the preparer data enters the source documents into tax preparation software. Next, the preparer compiles a list of questions and missing information. He then plays a few rounds of phone tag until he reaches the client and asks the questions. Of course, the client won’t have all the answers at his fingertips, so the preparer gets to enjoy another few rounds of phone tag to get the answers.
Here, of course, you object. You use e-mail instead of the telephone. I stand corrected. After ten e-mail messages, stretched over two weeks, you have your answers. Of course, during the depths of tax season, you are receiving twenty messages an hour. Out of the ten e-mail messages from your client, you’ll likely miss the one with the real answers.
The preparer completes the tax return and delivers the return via paper, secure e-mail, or portal. He then hopes, prays, and finally calls the client to get the signed 8879 forms. The preparer e-files the returns and waits to get paid. After tax season, a month gets wasted collecting receivables and dealing with client late payment excuses.
What’s wrong with this process? Pretty much everything. There are two central tenets to ruthlessly efficient workflow management. First, tasks should be performed by the least expensive staff qualified for the tasks. Second, anything that can be automated should be automated. Here’s workflow the 21st century way.
First, the client posts his tax documents to the firm’s practice management software in the cloud. The practice management software, however, is light years ahead of portals. The software also manages firm projects and automates routine client communications. Portals are so 2010.
Next, a member of the admin staff downloads the tax documents and combines them into one PDF file, which is then submitted to a scan and populate program such as CCH’s Autoflow. A first year staff member then validates the data entry and imports the data into the tax preparation software. Only now does the preparer get involved.
The preparer compiles a list of questions and missing information and posts the questions list to the practice management software, which then notifies the client that questions are ready. If the client doesn’t answer the questions within a few days, the practice management software sends an automated reminder.
At all stages of the process, firm management tracks return statuses and prods preparers, who are falling behind.
The client answers the questions directly on the practice management site and posts any additional source documents such as settlement statements. The preparer gets a notification from the practice management software that the questions have been answered. The software then records that the preparer is back up at bat.
The preparer completes the return and posts a PDF draft to the practice management software, which notifies the client automatically. The client reviews the draft and suggests changes directly on the site or approves the draft.
An admin staff member posts the final return with filing instructions to the site. The invoice for the return is also posted, which must be paid by the client before e-filing. The site accepts credit card payments for client convenience. Getting paid on time is central to ruthlessly efficient workflow management.
The client posts signed 8879 forms to the site and pays the invoice. The admin staff member e-files the return and records IRS acceptance by advancing the return to the completion step. The practice management software then notifies the client that his returns have been accepted.
Imagine how many more returns your best preparers can complete if freed from admin tasks and routine client follow-up calls and e-mails. By substituting lower cost staff and automation for more expensive staff, you achieve ruthlessly efficient workflow management.
If Tammy Tardy had practiced ruthlessly efficient workflow management, the morning of April 16th would have been pleasant. Instead of fielding dozens of phone calls griping about penalties and extensions, she could have been boarding a flight to a wine tour of France. The key to profitability and survival in the 21st century 1040 market is ruthlessly efficient workflow management. You can be Tammy, or you can drink wine in France. You’re choosing whether you know it or not.