Tax Practice Management: 4 Tips to Consider When Buying a Tax Firm’s Book of Business

When thinking about acquiring a tax practice’s book of business, here are four tips to consider:

• Tip 1: Choose the Right Tax Practice
• Tip 2: Evaluate Technology and Processes
• Tip 3: Align Financial Incentives
• Tip 4: Build a Transition Marketing Plan

1. Choose the Right Tax Practice

Transitioning a book of business can be a time-consuming, resource-intensive process. This means it is essential to partner only with a transitioning tax firm with whom you are truly aligned. This alignment will help you smoothly integrate the exiting firm and ideally retain clients through the process.

As you consider whether or not a tax firm is a good opportunity to take over, ask yourself the following few questions:

Do we have the experience to serve the firm’s clients?

For example, if a firm has been serving startup and tech industry professionals, you’ll want to ensure that you have experience working with that general demographic (young, multicultural, etc.) and the relevant expertise to serve a client base with needs including equity compensation planning, crypto taxes, and other complex scenarios.

What level of involvement are they hoping to have during and after the transition?

As you take over a book of business, you’ll likely have to work with the firm’s tax advisors throughout the transition. This includes communicating with staff and clients along with sorting through operational decisions. And at some point, you will outright own the business. As you map out this process, set clear expectations with the exiting tax advisors on their involvement to avoid unexpected issues as you take full management of the firm.

How do they communicate with clients?

Client communication is important to building long-term relationships. By understanding how often and by what methods a tax firm communicates with its clients, you can begin planning for any differences in the way you communicate. For example, if a tax firm sends a monthly newsletter that their clients are used to receiving, you may want to consider maintaining that practice if it may help retain clients. 

What standards do they hold themselves to when serving clients?

Knowing a tax firm’s internal standards for client experience can help you identify operational changes you may want to consider. For example, if your firm has clear timelines set around collecting client documentation and client follow-up, you will likely want to communicate those standards to new clients and any new staff that you retain.

How have they communicated with you throughout the evaluation process?

How a tax firm communicates with you as you evaluate taking over their business is a good sign of how they will communicate with you when it comes time to make the transition. It sounds basic, but if you see any red flags when you are evaluating a firm, there may be a good chance those issues continue as you integrate the book of business.

What marketing and sales strategies have they used to attract clients?

Knowing how the book of business that you are taking over was developed can provide you with strategic insight for future client retention and growth efforts. For example, if the clients were built through referrals and relationships, you’ll likely want to focus on maintaining that structure to help ensure the social networks that grew the business do not disappear. You may find that you can leverage the firm’s networks for additional referrals. Likewise, if the book of business was grown via paid advertising, you can understand the strategies used and continue to invest in what was working to attract clients.

Have they raised prices recently?

If the firm has not raised prices in the last year or two, there is a chance they are underbilling compared to market rates. Consider raising prices as soon as possible but approach it methodically to avoid client turnover. Examine your entire book of business and the relationships among clients. For example, you may find a long-time client who is being billed under market rates, but they are referring valuable business to the tax firm. Understanding these details will help you navigate a price increase. And if you feel the tax firm was charging clients far too little, you may what to consider if the book of business makes sense to take over in the first place.

Most importantly, as you go through the process of evaluating a tax firm, trust your gut. Taking over a book of business can be a fast way to grow but if you don’t do your due diligence, you may run into more problems down the road.

2. Evaluate Technology and Processes

Understanding how the business has been operating and evolving over the past several years can help you understand how to optimize it as you begin integrating the firm. Not only does this include the tax firm’s clients but also its technologies and processes.

Evaluating the technology and processes in place across functional areas can determine whether you can leverage what exists or if you need to eliminate or replace existing ways of doing business.

The following graphic shows common areas to consider when examining a tax practice’s tech stack and processes:

Technology questions to review when taking over a tax practice

As you are examining a tax firm for takeover, consider the following questions:

1. Is the tech stack of the tax practice similar to your current tech stack? Certain technologies in the existing practice may be leveraged moving forward, but others may need to be replaced. This is a key aspect to understand prior to taking over a tax firm. An important detail to uncover early is if the transitioning firm is operating with on-premise technology. If you operate with cloud software, migrating the transitioning firm’s on-prem tech can be a resource-intensive project.
2. How easily transferable is the data within each system? Depending on the systems used, data may be easily migrated or you may have to manually move data. Understand how this will work and if you have the technical skills to handle data migrations or if you need to hire a data specialist. 
3. If you change the tech stack, what is the impact on client and staff experience? If a tax firm’s tech stack is dated, you may want to consider strategically modernizing it by starting with areas that will provide immediate value without disrupting client service. Sudden large changes to client and staff experiences may result in higher turnover as it can be difficult to handle learning multiple new platforms along with new processes. Consider having a change management plan for the first year after taking over a tax firm, methodically scheduling the changes you would like to make.

3. Align Financial Incentives

Every purchase of a book of business is different. Transitions may be driven by a retirement, a career change, or a personal reason. To the best you can, make sure that you understand the reasons a tax firm owner is leaving the business. By knowing this, you can structure incentives that reinforce the type of behavior you want from the transitioner as you inherit their book of business.

Often, what is more important than the actual sales price of a book of business is how smoothly the handoff is executed. There is no higher leverage moment to ensure a smooth transition than agreeing to financial terms.

As you align on financial incentives, consider:

• Will the transitioning tax firm maintain any minority ownership?
• Will the transitioning tax firm be offered any performance-based earnouts? 
• What documentation or organization of records is required during and after the transition?
• What is the list of activities that the transitioning tax firm agrees to complete as you migrate their book of business? 

4. Build a Transition Marketing Plan

Building a transition marketing plan can ensure that you maximize the value of the book of business you’re acquiring. 

One way is to segment the transitioning clients into four tiers based on the following criteria:

• What is the client’s value? Low / Medium / High 
• How easy is a client to work with? Low / Medium / High
• Does the client generate referrals? Yes / No
• Is there a potential to expand work with the client? Yes / No
• Do we have the expertise to serve the client? Yes / No

Once you score each client based on those criteria, you can group clients into the following tiers based on what is manageable from a communications perspective, along with the strategic goals of your firm.

Tier A Clients

• Communication strategy: The transitioner will personally call the client and introduce you directly.
• Relationship strategy: Evaluate opportunities such as immediate tax needs and long-term comprehensive services.

Tier B Clients

• Communication strategy: The transitioner sends a personal email to the client with a virtual introduction to you. You may choose to call the client after the email if there is no response.
• Relationship strategy: Evaluate opportunities such as immediate tax needs and long-term comprehensive services.

Tier C Clients

• Communication strategy: Mass email introduction from transitioner with a follow-up mass email from you.
• Relationship strategy: No additional evaluation. Continue to offer services as needed.

Tier D or Churned Clients

• Communication strategy: Consider using mass email but first evaluate whether you want to engage all of these clients, as there may not be ROI to investing in marketing to them. Some clients you may determine are not serviceable based on your firm’s focus or profitability.
• Relationship strategy: No additional evaluation. Continue to offer services as needed or communicate to the client that your firm will no longer be able to service them after a specific date.

Every book of business is different. For smaller, high-value client lists, you may be able to implement a more personal outreach strategy to all clients. Yet, for a list with hundreds of clients, you’ll want to analyze the list and develop a plan to retain clients who are a good fit for your tax firm.

Need to Support Your Tax Practice’s Growth?

If you are considering taking over a tax firm’s book of business, Harness has tools to help you offer a modern client experience and create operational efficiencies as you take on more clients.

Schedule an intro with Harness today to see how our modern software, in-house concierge team, curated high-value client introductions, and professional community can support your tax practice.

Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances.