‘quick questions’ and other client sins

how to quietly convince them to pay for tax planning.

by frank stitely
the relentless cpa

a well-known practice management expert, whom i greatly respect, advises cpas to never tell clients that you don’t have time for them. i disagree with the never part. you know how it starts. on march 25^th, the call comes in.

“i know you’re busy but …”

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a request follows that could most certainly wait until after tax season. you are hip deep reviewing all the personal tax returns that got stuck in process while you climbed out of the march 15^th corporate tax ditch.

“i need to know if i’m paying unemployment taxes to the right states. i think i should be paying taxes to the people’s republic of california, but i’m not. i’ve been paying unemployment taxes to uzbekistan instead.”

you know this doesn’t have the urgency of picking at navel lint during tax season. she has been paying it incorrectly for the last half-century. another month won’t matter. nonetheless, you have a client who expects you to research unemployment taxes for california and uzbekistan in late march. of course, it’s just a “quick” question. what do you do?

our respected practice management expert would have you perform the research under the principle that you must always appear to have time for everything. i disagree. during tax season, you don’t have time for every request. that’s a fact, jack. if you drop everything to respond to this request, you’re keeping one client satisfied, probably not even happy, while making three or four others very unhappy waiting for their tax returns, which presumably are the entire point of tax season.

here’s where i think he goes wrong. he doesn’t believe in telling clients up front, before and during tax season, that you simply don’t have time for everything and tasks that can wait, must wait. that’s tax season. if you follow his advice, you have two alternatives.

do the research and make other clients unhappy. or tell the client that you don’t have the time to do the research until after tax season. both are bad alternatives. you end up making someone unhappy and probably getting an earful when your emotions are already raw.

i believe in setting expectations before tax season. earlier i described our series of pre-tax season e-blasts getting clients ready for tax season. one of those explains that we don’t have time for everything during tax season. we focus on tax returns and year-end financial statements during tax season. we don’t have time for much else.

we do this with humor. we explain that the biggest problem we have during tax season is actually finding the time to prepare tax returns amid all of the other non-tax season requests. i use some ridiculous example of something a long-dead client asked me to do in the past. i explain that it’s not their request that’s the problem. it’s the 400 requests from other people that are the issue.

an underlying cause of the problem is that all your 2,000 clients see themselves as your only client. if that’s the case, you are doing a great job of client service. however, this leads to the mindset that you surely have time for this one request. of course, we know it’s not one request. it’s 400 requests.

for example, a client told one of our admin staff last week, “frank will do this for me. we go way back.”

this came from a $500-per-year client. clearly, he sees himself as a very important client. i like him, but our practice doesn’t survive on $500 clients asking for favors in late february.

it doesn’t look like i’m succeeding at stopping the non-tax season requests from the above example. however, my goal isn’t 100 percent success. that’s not realistic given the size of our practice. the goal is to stop most of the bleeding. any time that we recover adds to our tax season capacity and pushes off tasks until after tax season, when we have more free capacity.

of course, april 16^th rolls around and 400 clients all think i’ll have their tasks completed by close of business …

that brings me to my least favorite organisms on the planet, mortgage underwriters. i’ll bet you love them too. on march 14^th, a client calls and asks you to write a letter to a mortgage company stating that if he moves his business to lower east nairobi, his revenue won’t decline. the mortgage broker says cpas write this letter all the time for his clients.

we have a professional duty to remove the virus of the mortgage underwriter from the planet. forget global warming, underwriters are a much bigger long-term threat to humanity. fortunately, artificial intelligence is already removing them. but until the cure is complete, we suffer – mainly during tax season.

i deal with these idiots as follows. when they ask me to write something particularly stupid, normally a prediction about the future, i send them the aicpa guide on mortgage “comfort” letters. i copy my client and i highlight the date, which i believe is 2007. i then inquire how long the mortgage person has been in the business. maybe he hasn’t been around long enough to know about the guidelines in effect for more than a decade.

the implication for my client is that his mortgage person isn’t very knowledgeable. this is a setup for my eventual referral to someone in my networking sphere who refers clients to me. it’s a win-win. the client gets a better mortgage person, and i get more referrals. i cultivate relationships with mortgage people who know how to deal with business owners. there aren’t many of them.

to put a wrap on this little subsection, you can reduce the number of non-tax season requests, but you can’t eliminate them. i don’t even think you want to. our aim is to have time during tax season for the truly urgent non-tax season tasks.

for example, right now a large business client is negotiating a sale of the company. they are using our conference room for confidential discussions with the potential buyer. my client’s attorneys are asking me for support materials and document review. few tasks could be more time-consuming and inconvenient during tax season. however, for these business owners, this is the culmination of lifelong dreams. we exist to help clients succeed. i’m making time for this.

pay for tax planning

you’ve surely had this conversation a million times during tax seasons, most often in april. you give a client a tax return with a $20,000 balance due.

client: i didn’t expect to owe that much.

you: how much did you expect to owe?

client: about $5,000.

here’s where my conversations may differ from yours a bit.

me: what did you base that expectation on? you didn’t make any of the estimated tax payments from last year.

client: my income and deductions.

me: how did you put those together to come to your conclusion? i’m interested, because that might tell me if i have a mistake on the return.

client: i don’t know …

me: we offer tax planning services that would have told you the likely result back in november. we could have prevented this result then.

we know that if we had given him a tax return with a $5,000 balance due, we would have had the exact same conversation except that he would have been expecting a refund. someday i’m hoping for an honest client answer along the lines of, “i consulted a ouija board and it gave me a lower balance due.”

my response to the client whining about the balance due has three purposes:

1. emphasize the point that whining about the balance due won’t change it
2. promote our tax planning services
3. get the idea across that, if he has not engaged us for planning, i’m not listening to the whining

why do these conversations matter and why should we seek to eliminate them? because they waste time during tax season when we don’t have time. a client sees his balance due and immediately picks up the phone and prevents you from being productive for an hour. what’s the final outcome? the same balance due, just after a wasted phone call.

tax planning cuts down on these unwanted interruptions by moving the unpleasant balance due conversation out of tax season and into the fall. who knows? maybe given a few months, you might even be able to get that tax balance due down. no more, “if only we had talked in november …”

tax planning gives you the ability to cut short the april balance due complaining session with, “we offered tax planning services in the fall. maybe we could have gotten that balance due down.” instead of defending your tax return, you respond that the fault lies in insufficient client planning. he had the chance to reduce the balance due but didn’t take it. that’s a whole different conversation and a much shorter one.

does this work? yes – in three major ways. first, we have shifted the blame for tax balances due from us to clients. second, a significant portion of our clients pay us for tax planning. finally, the revenue earned outside tax season is nice.

how do we promote our tax planning services? e-blasts and blog posts for existing clients. we don’t send just one isolated e-blast but at least one per week outside tax season. if i remember correctly, we sent 60 e-blasts last year to existing clients. not all of them explicitly promoted tax planning services, but no one can claim we didn’t offer them planning opportunities. the question is only whether they choose to pay us to do it. that’s on them. we don’t create large balances due. they do, and they can avoid them.

promoting tax planning to prospective clients is incredibly easy. how much do i like you so far? hmmmm.

when i talk with prospective clients in any medium, i lead with tax planning. i don’t care if i’m meeting them, calling them or emailing them. i lead with tax planning. the number one complaint clients have about cpas and tax preparers is lack of planning. they get tax returns and nothing else.

the fun part is seeing the reaction when i mention planning. i tell them that they can know the results while there’s still time to change the results. tax season is no longer stressful, because they know the answers in advance about refunds and balances due.

i then launch into some specific planning areas we will explore. this part depends on the new client’s situation. note the term “new client” instead of “prospective client.” by now the sale is closed. the rest is just showing off on my part.

i normally start with setting out what i see as the client’s big life priorities such as retirement and college funding for kids. when you start talking about funding education for their kids, you push parental buttons that are visceral. we might talk about debt reduction as a precursor to taking on their financial priorities.

in another post, i write about how financial planning must morph beyond asset management. we must view the entirety of a client’s financial situation. that starts with our very first client contact.

you get clients to pay you outside of tax season by giving them something valuable – wholistic financial advice of which tax planning is a big part. i get all emotional over this. i need to take a break and find a box of tissues. i didn’t cry this much when jennifer aniston went on a date with a cpa in “the break- up.”

follow firm processes

when i’m frustrated, here’s how i explain the importance to clients of letting us work our process:

“when you get your car repaired, you don’t look over the mechanic’s shoulder and tell him which wrench to use. the same principle applies to us. if you knew the best ways to prepare tax returns, you should become our competitor.”

we all have clients who bring in tax documents in laminated three-ring binders. they smile big toothy grins and tell us how they’re our most organized client. there’s no reason for us to organize the documents as they’ve already done us this huge favor. of course, there will be no reason for us to remove anything from the binder and everything should be left in the binder just as it is.

we call these people binder boys. they have no clue that organized for them is not organized for tax return preparation. preparing a return from documents in a binder takes twice as long, at least, as preparing returns from a well-organized pdf file.

we also have the people who use five pounds of staples to organize 20 pages. they don’t want any loose documents falling out of the file.

what do these people have in common? they believe they’re doing us favors with their form of organization. that’s not the case. so how do we get them to not so favor us?

in the absence of order, you get disorder. many clients really value organization. they just have no clue how to do it for our purposes. they organize for their vision of what we desire. they envision that we prepare tax returns the way they would in front of their computers.

our task is to get them to reorganize our way. we do this with gentle client education.

in our firm, we send an e-blast as part of our countdown to tax season explaining that there is a steel shortage of crisis proportions. using five pounds of staples endangers the universe. even paper clips threaten the delicate ecological balance that allows the red-breasted gill-breathing chin monkey from bora bora to exist. we try to change the message up a bit each year.

you get the picture. with a little delicate humor, we can re-educate clients about document organization.

as i am writing this, we are getting maybe the biggest tax season break of all time. if you are reading this, we are all probably dead from the coronavirus, and we are in heaven debating practice management. at least that’s my idea of heaven, if there’s beer – craft beer.

the threat of a real-life stephen king in “the stand” outbreak is keeping clients indoors and avoiding meetings. many of our clients who drop off their documents every year or come in for annual meetings are uploading their documents to clarity practice management.

last tax season, about 75 percent of our clients uploaded their tax documents to clarity practice management. this year, the number looks more like 85 percent. more clients are discovering the joy of getting their tax returns prepared while they sit on their couches watching “cheers” reruns.

i’m beginning to love viruses. i may unleash another one next year.

let’s end this post by being perfectly honest with each other. there’s a reason you aren’t actively training clients to allow you to work efficiently. you’re afraid that you’ll lose clients.

i guarantee that you will.

clients have trained you to be inefficient. they’ll resist retraining. some of them will leave and infect someone else’s practice.

the reason you fear losing clients is that you fear you can’t replace them. that’s a marketing problem.

this isn’t a book about marketing. however, here’s frank’s rule of marketing. revenue cures a multitude of ills. many of you shut down your marketing efforts years ago. you stopped marketing because you feared that you couldn’t manage growth.

you couldn’t manage growth because your existing clients made you inefficient. you need a steady stream of new prospects so that you can select the ones who add value to your practice. a steady stream of new clients removes the fear of losing the bad ones. in fact, you’ll want to fire the bad ones.

we’ll end this chapter with a recent story from my practice.

a couple of years ago, i inherited a large-revenue client from my retiring partner. we billed them nearly $18,000 per year on a fixed-price contract. my retiring partner had dealt with the owner for years, and they had a great personal relationship.

i took over the relationship as the owner retired and passed on the company to his sons. in the middle of my second year with them, i had some serious misgivings. first, they weren’t a very profitable client for us. i was unhappy with the time we were spending on what seemed like a never-ending growth in new tax returns for us to prepare. they were also sensitive about price.

worse than the money, however, they wouldn’t take advice, and then they would complain about the consequences. one of the sons wanted to decide when i could take a vacation, because he wanted to close his books in mid-december – not the end of the year. why? he wanted to take a vacation the last week of the year.

how many red flags does one need to know this is a bad client? apparently, i needed one more. i had a phone call to discuss a draft tax return with one of the sons.

he said, “you don’t know who you’re talking to.”

yes, i did. i was talking to an ex-client.

we have a steady stream of new clients that gives us the freedom to say no, even to a big-revenue client. i would rather have four $4,500 clients than one $18,000 client. large clients think they own you and want to control the relationship. that’s how you end up doing bad things.

our saying is, “we’ll replace them by close of business today.”

posted on january 5, 2021