By Chris Basom
Money Magazine’s May 2017 issue (printed edition) contained a one-page article that sums up everything you need to know about the current state of our industry.
The article is a brief analysis of H&R Block stock - it’s subtitled “The Tax Preparer Faces Challenges Beyond President Trump.”
The analysis reveals the following:
- Over the last 12 months, the S&P is up 20%, financial stocks are up 30%, H&R Block shares are down 6%.
- Over the past three years, H&R Block shares are down 35.4%.
- Returns prepared at H&R Block have slipped 6.2%, 4.4%, 5.7% over the last three years = total unit loss of 16.4% over three years.
And while H&R Block is sliding…
- Turbo Tax experienced 10%-unit growth this last year – and has experienced double-digit growth annually for the last several years.
- Intuit shares are up 59.9% over the last three years.
Money Magazine cited the President’s new plan to “simplify the tax code” as another challenge the industry will face. One measure in the President’s plan is to dramatically increase the standard deduction. This move will nullify the need for 84% of those currently itemizing. Only 16% of filer’s itemized deductions are greater than the proposed standard deduction, further marginalizing the tax preparation process.
In a parallel universe, last fall we released a new 90-minute course at TaxPro University entitled:
“Why Clients Secretly Love Turbo Tax”. The course struck a nerve. The NATP asked us to present some highlights from the course to their membership in January of 2017. We sold out both 1,000 seat sessions. This topic is obviously front-and-center on the minds of tax pros across the country.
The numbers through filing season 2017 are also now in and they verify why this is such an “elephant in the room” topic > https://www.irs.gov/uac/newsroom/filing-season-statistics-for-week-ending-april-21-2017.
The 122,164,000 e-filed returns represent a reduction in total filings by 3% year over year (y/y). Tax Pros filed 70,401,000 of that, a reduction of 7% y/y.
D.I.Y. (a la Turbo Tax and the like) volume was 51,763,000, an increase of 2%.
These are only scary numbers when you compare them to the 2012 filing season > https://www.irs.gov/uac/filing-season-statistics-for-week-ending-april-20-2012.
The total e-filed returns to that point were 109,000,000.
Tax Pros filed volume was 68,280,000.
DIY filed volume was 40,720,000.
The five-year growth in e-filed returns from April 20, 2012 to April 21, 2017 was 13,164,000. Tax Pros captured 2,121,000 of that, while DIY providers captured 11,043,000 new returns.
This means industry growth of e-filed returns during the last 5 years has gone 16% to Tax Pros and 84% to DIY providers.
This is not a fluke, or a blip, or an anomaly. It is the future. It's time we (as an industry) recognize the revolution that we are experiencing.
By the way, H&R Block has reinforced this whole shift by the consumer away from human solutions to tech solutions in their latest promotions. They hired “Watson”, IBM’s artificial intelligence computer, along with deploying a new slogan – “Don’t just get your taxes done, get your taxes won!”
The message loud and clear was “you need a computer to get a better tax result” – not a person.
Then they institutionalized the commoditization of tax services. This last season they attempted to combat Turbo Tax’s “absolute zero” pricing of basic returns with their own “H&R Block More Zero.”
This move reinforced any existing consumer attitude that tax prep is about price. It also validated a tragically bad business practice that so many Tax Pros resort to when pricing pressures surface - do work for free. More work for less pay. We make it up in volume, right?
We end up devaluing what we do for clients and cutting our margins to the point where we can’t deliver what client’s want from us – real help.
What Does This All Mean?
This data does not mean it’s time to throw in the towel or sell everything you own to support yourself while you go back to college and choose a new career.
In fact, we believe this is the best time in modern history to be in this industry. We’re at the edge of huge opportunity curve for firms that are willing to wake up and act.
The reality remains, however; many tax and accounting firms will shut their doors in the next 5 years.
Many firm owners will continue to lose market share, watch their margins shrivel, and will be forced to make big changes or go do something else.
How many firms will be left standing? We don’t know, there’s no way to forecast that accurately.
But we do know there will be firms that implement the right pivot plan and will then realize huge growth from taking care of the clients left behind from all the firms that don’t make it.
It’s a sad, hard truth, but still the truth none the less. If you don’t catch the ball, someone else will - and they’ll take it back for a touchdown.
How do we know this is true?
Simply, because people’s needs don’t change.
The mechanisms they use to address their needs change over time, but their root needs don’t change.
Let’s look at some examples:
People need to be entertained | Live music you play/consume at home or at the local “Pub“ > Vinyl Records > Cassette Tapes > CD’s > Streaming Music over the internet.
People need to travel | Walking on foot > Riding a Horse > Take a Train > Drive a Car > Fly in a jet.
The mechanisms people used to solve their basic needs over time have changed, but the needs haven’t.
This directly applies to another huge need people have in their lives – they need help making and saving money.
Because of the industry we’re in, we sadly take for granted our comfortability and understanding of money and finances. For the mass majority of the population, they want to be wealthy (or at least maintain their lifestyle) but they don’t understand money and the best practices for how to make more of it and keep more of it.
This is especially true of business owners who are mainly focused on running and growing their businesses in whatever way they can – not implementing every possible strategy to manage their money most effectively.
There will always be a large group of the population that needs help managing their finances, and we (Tax & Accounting peeps aka, “Money Professionals”) are the best-prepared group of people on the planet to help clients with this need.
So, no matter what, there will always be people that want help and need help, the trick is us knowing what help they find truly valuable, and then knowing the best ways to deliver that value.
How to Deliver the Value
Delivering the value clients today (and tomorrow) truly want is also incredibly simple.
Like most things in life, the difference between success and failure is doing the simple things consistently or not… For firms that want to be successful moving forward, they must relentlessly execute in 3 key areas:
1) Focus on helping clients reach their specific goals faster – don’t focus on getting a tax return or bookkeeping done. Those things will happen naturally as a necessary transaction while helping the client reach their goals.
2) Implement technology & processes to make life easier for your client – not harder.
3) Invest in building a genuine, deep relationship with every client – Your client knowing someone cares about them and their success and is there to help them, is a tangible value TurboTax can never provide.
Key Take Away
We don’t want you to look at the changes happening in the industry and feel nervous or anxious.
We shared this data because we want you to feel excited and inspired about the incredible opportunities ahead!
These opportunities can only be capitalized on by firms who know how to make the right changes.
We want to do everything in our power to help firms set up their businesses for success in the future, so we created a tangible way to help – The Double Your Fees Workshop.
During this workshop, we’re going to take 20 firms, step-by-step through the exact process for how to get fairly compensated for their value right now, and future-proof their firms for tomorrow.
If you want more info on how to access the workshop, please check out the workshop page and reserve your spot > Learn More & Reserve Your Spot.