How to Compete with the National Tax Firms

By The Income Tax School | November 6, 2009
Posted in: Misc

Veteran tax industry executive Charles E. McCabe is interviewed by Inc. Magazine Senior Business Consultant and specialist in entrepeneurial leadership, Richard Russakoff.

McCabe is the founder of the Richmond, Virginia based Peoples Income Tax, an innovative, multioffice tax preparation firm that has grown rapidly since its establishment in 1988. Honored in 1993, 1994 and 1995 as one of the fastest growing companies in the metropolitan Richmond area, Peoples was also named a 1994 Blue Chip Enterprise by the U.S. Chamber of Commerce.

This recognition reflects the success of McCabe who has over 25 years in the industry. A former top executive for H & R Block, McCabe was a regional director of the New York City and MidAtlantic regions, managing up to 250 offices. He also helped Block establish a South American franchise.

Russakoff: Why do you expect a shakeout in the tax preparation industry?

McCabe: In today’s highly competitive environment, being just good isn’t good enough; to survive, you must excel, you must be better than the competition; you can’t stand still; you must grow or shrink and die.

Employing state of the art technology is a prerequisite for survival, but that alone will not set you apart from the crowd. Everyone has access to the same computers and software.

Tomorrow’s most successful tax firms will be multi-office mass marketers who can deliver consistent quality and efficiency at affordable prices. They will appeal not only to low income and blue collar workers, but to upwardly mobile professionals and executives.

Many single office tax firms will fall by the wayside unless they become affiliated with syndications (tax practice networks and trade associations) to help them compete with national firms.

Russakoff: How can the smaller tax firms compete with the national giants?

McCabe: Mass media advertising is the most efficient method to reach the market all taxpayers and such advertising requires multiple locations or advertising cooperatives. Advertising results are dependent both on the production of quality literature, print ads and commercials based on sound marketing principles and efficient, effective media buying strategies.

Office site selection and leasing are also critical elements. The public has become comfortable with storefront professional services. Tax preparation is a retail consumer service and is best suited to a retail shopping environment.

High visibility increases consumer traffic the lifeblood of a mass market business and reduces the necessity for mass media advertising.

Alternative retail outlets that can be occupied only for the tax season represent a critical strategy for success. These sites include kiosks and temporary offices in shopping malls, leased departments in discount department stores, supermarkets, and even seasonal processing sites in check cashing and convenience stores.

Management and finance expertise will also be critical to success, which, for the entrepreneur, means getting outside help from the most affordable and effective sources possible. An effective strategy might include tapping into syndicates and forming an executive advisory board as I did several years ago.

Russakoff: So is visibility, through advertising and location, the key to success?

McCabe: It’s part of it. But ultimately, the key to success is people: attracting, recruiting, training and motivating the right peope will make the difference between success and failure. Having an adequate supply of good people is necessary to deal with attrition and to support growth.

Tax preparation is a service business — a people business. That’s why I named the company Peoples.

The tax firms that will survive and grow in the 21st century will be those with a staff of trained, qualified and motivated people. To implement that for Peoples we established our own income tax school in our first full year of operation. In 1993 it was made available for licensing nationally and now hundreds of tax firms are using our income tax school system.

Russakoff: Tell me more about why a tax school makes a difference.

McCabe: An income tax school is an essential element for any tax firm which wants to grow and compete with the national firms. A school provides a pool of qualified entry level tax preparers who pay you for training. You pick only the best graduates after having had the opportunity to observe them for several weeks.

Advanced courses are available to provide continuing education for other employees, while the teacher (the owner or a key employee) greatly reinforces his or her knowledge. The school reduces training costs and provides a strong base of tax knowledge to give a firm a competitive advantage.

Peoples’ growth from three offices in 1988 to 30 offices in 1994 just six years later could not have been achieved without our income tax school.

Establishing a school also generates off season revenue and activity while enhancing a firm’s image.

Of course, managing multiple offices also requires systematic methods of operation and written policies and procedures, as well as continuous training. Peoples will also make these support tools available through its seven-module Tax Practice Kit.

Russakoff: Off season activity and revenue is often a problem for tax firms, isn’t it?

McCabe: Yes, but it doesn’t have to be. An income tax school is one of the most important diversification tools, but there are many other strategies. Revenue can be generated through related and complementary services including continuing education courses for tax practitioners, CPAs and attorneys; bookkeeping services; tax and financial planning; personal money management and bill paying; and college application and financial aid assistance, just to name a few of the many possibilities.

Russakoff: Why not just hire experienced tax preparers or accountants who can learn quickly?

McCabe: Qualified tax preparers with real experience are in short supply. Accountants and CPAs don’t always make the best tax preparers because they often are more focused on numbers than people.

When I was director of H & R Block’s New York City region, I decided to measure the prior client repeat factor at the individual office and tax preparer level. The results were shocking.

In many cases, people we thought were our best tax preparers had the worst prior client repeat ratios, often in the 50 to 60 percentage range. Why? Simple, they were tax technicians. They didn’t care if clients had to wait, were treated with respect, didn’t understand why they owed taxes or why they didn’t get a larger refund. Would you come back to someone who treated you like a number?

Russakoff: The trick is to be exposed to people long enough to know whether they have the people, as well as, professional skills.

McCabe: That’s right. The school we’ve developed offers a 10 week, 60-hour basic tax course. During this period the instructor has the opportunity to observe not only the potential employee’s grasp of tax knowledge, but also their people skills, punctuality and appearance. In few other hiring situations are employers able to do this. It’s a tremendous advantage!

Russakoff: Who are the prime candidates for employment as income tax preparers?

McCabe: You want to hire people who can be satisfied with a seasonal career. The best people will be motivated not merely by making money but also by pursuing a profession working with people. These are the kind of people you can build your business on, who will return year after year to serve their loyal clients, and who are dedicated to their profession.

Prime candidates include: early retirees (money is not the primary motivation and seasonality meets their needs); homemakers (ideal way to keep active in the work force while children are in school); moonlighting professionals (desirable part time profession year after year); college students (opportunity to gain business experience and work flexible hours); seasonal workers (complements jobs with opposite seasonality for full employment); and career changers (enables blue collar workers to break into a white collar profession).

Russakoff: What costs are associated with operating an income tax school?

McCabe: The costs are quite reasonable. The Income Tax School can be conducted for under $1 per class hour per student.

Even if the course is offered free, the cost is far less than any other method of recruiting and training employees, and the result is far superior.

The cost of not operating a tax school is even greater. If a firm is not ready for the tax season with an adequate staff of trained tax associates, costs will be dramatically increased, and revenue will be reduced. An income tax school provides the people you need trained your way.

Russakoff: What kind of time commitment is required to operate an income tax school?

McCabe: Years of experience and practical application have gone into the development of Peoples school, just one component of our Tax Practice Kit. Because of this, the operator’s time is greatly reduced. All of the groundwork is done and a detailed plan, including comprehensive instructor, student and operating manuals, is provided. The benefit of not only our tax knowledge, but of how to teach the course, makes implementation simple. Because courses are offered in the “off season” the operator will have the time necessary to devote to teaching and marketing the school.

Russakoff: What expertise is necessary to teach and manage a school like yours?

McCabe: Any owner or manager of a successful tax office should be qualified to manage a preprepared program such as the comprehensive system we provide.

The teacher should have two or more years of experience in income tax preparation and be an effective communicator. Most people who have never taught will be apprehensive — that’s normal, and positive. Teaching adults is easy and fun! Adults tend to be the most motivated and conscientious students.

Russakoff: Aren’t the licensing requirements for private school in some states cumbersome?

McCabe: They can be. Some state regulations are easy to comply with and some are difficult. Becoming licensed can be a problem, particularly when you’re just starting out, but there are alternatives to a licensed school. Some states exclude schools that do not operate for profit, or do not charge tuition, even if a fee is charged for books and materials. Many of our licensees get local community colleges, high school adult education, or licensed business schools to offer the course, buy the materials and then hire the licensee or a key employee to teach. This eliminates marketing costs and enhances credibility. Peoples taught its first income tax school course through a local community college as a three credit course and continues to conduct courses through two local community colleges.

Russakoff: If your licensees have questions about how to implement Peoples tax school or other modules of the Tax Practice Kit, can they get help?

McCabe: Yes. We provide toll free telephone support without additional charge. We also offer management consulting for strategic planning and other operating issues by phone at an affordable hourly rate. Our licensees are small business owners with limited resources who need affordable solutions that help to generate profits.

Russakoff: Peoples has made incredible strides in just a few years. What do you see for the future?

McCabe: Peoples will become a nationwide provider of operating systems and support to enable independent tax and accounting firms to grow and prosper. These systems will be licensed at modest fees instead of the costly fees and royalties charged by national franchise companies. Operators are free to run their businesses their way, under their own names, with no restrictions.

In addition to the school module, firms that seek support through our Tax Practice Kit can now receive low cost phone consulting and the Tax Office Operations Manual, Tax Practice Expansion, Marketing Management and Year Round Revenue Plan handbooks. In 1997 we will provide the Financial Management and MIS Manual and the Diversification plan. Our licensees will be part of a nationwide network receiving the information and support needed to meet the challenges of the 21st century.

Charles E. McCabe is founder of the Richmond, Virginia-based Peoples Income Tax. He has over 40 years of experience in large-scale marketing in the tax preparation industry.