Many tax & accounting firms today are looking to "scale" their business operations, which simply means growing revenue faster than associated costs
By intentional design or simply due to the culminated circumstance of the last three years, most tax & accounting firms now are offering more services to their current clients or are trying to attract new ones.
For some firms, it is part of their growth strategy, but for others it is a way revamp and reinvent their businesses. Not surprisingly, growth remained a top priority for most tax firms, according to the recently released 2023 State of the Tax Professional Report. Yet regardless of the reason, many tax & accounting firm leaders are wondering how best to move that strategy forward. And, for those firms that have yet to move forward because they were unsure how to make it happen, they have to think about how they will begin.
What is “scalability” for tax & accounting firms?
Nearly all tax & accounting firms need to look at how they can become scalable, says Mo Arbas, Senior Business Advisory Consultant for Tax & Accounting Professional Services at Thomson Reuters. Scalability is simply “an organization’s ability to grow without being hampered by its structure or available resources when faced with increased production.” In short — “increase revenue faster than cost,” explains Arbas, adding that for accounting firms it is merely about growth because for them, growth equals adding resources at the same rate as adding revenue.
Indeed, the difference between professional services firms and a business in which a physical product is produced and sold, is that the business understands and can more easily scale up the production of the product in order to have more products to sell, and therefore potentially increase sales and profits. Conversely, for professional services firms — and especially for small and solo tax firms — their product is, for example, the number of tax returns that can completed by the number of individuals who are required to get those done.
When a firm then looks to add services or even increase the number of tax returns it’s going to do, it will also have to look at what resources are needed to accomplish the desired increase.
Considerations before scaling
Interestingly, only 22% of new businesses launched in the past 10 years have successfully scaled their operations, according to a McKinsey & Co. There are many reasons why this number so low, but for professional services firms to have a better chance at success, there are a few factors that need to be considered, such as:
Setting goals — When setting goals to grow the business it is important to create a two-pronged approach and consider both the long-term and short-term goals. For the short-term growth goals, it is necessary to use a laser-like focus to make sure plans and executions are not too aggressive, too quickly which could be disastrous. If for example, the goal is to increase revenue by a certain dollar amount, first look at where that growth may come from among current clients or with current operations. Is it necessary to add new or additional services at this point?
Planning and trying to anticipate the most minute considerations that are required to launch and create additional services can be difficult. And not honestly and properly assessing where the company is currently can lead to significant consequences.
Evaluating resources — Author John Steinbeck said “…to find where you are going, you must know where you are.” And while Steinbeck was not speaking to tax firm leaders, this wisdom can be an important takeaway when they think about growing their tax & accounting businesses. To make sure that they scale in the right way, firms must assess what they currently have in terms of staff and technology.
For staff, taking an in-depth look at what each person does and how they contribute to the business is critical. Reviewing if those employees are being maximized in their current role and exploring whether their work can be automated or outsourced to free them up for new projects and opportunities can be an important benefit. Next, it would be crucial to evaluate if employees currently possess (or can be trained in) the skills needed to make those new business offerings possible.
Finally, leaders should do the same with all of their businesses’ technologies, including determining how these technologies are being used and if they are being maximized to their greatest potential. From here, they could then determine what, if any, new technology would be needed in order to scale up their businesses.
Identifying efficiencies — Leaders should also review current work process in order to understand what parts of the business operations are efficient and where improvements many need to be enacted. For leaders, this will be one of the cornerstones of successfully being able to scale their business. The more that can be done more efficiently through the work processes already in place within the business, the better position that business will be in to take on or create opportunities for growth.
For tax and accounting firm leaders who are focused on growth, their first consideration should be determining what type of service they want to deliver and to whom do they want to deliver it?
In order to help identify the services that would be the best fit, tax & accounting firm leaders can first look at “what services can be added that don’t require a lot of resources to deliver,” Arbas says, adding that leaders should remember that scalability within professional services equals product delivered with the time put in. “Firm leaders should view any opportunity through the lens of what benefits their firms and also their clients.”