Starting your own tax practice is exciting. It offers you the pride of owning your own business, the challenge of learning new skills, the thrill of landing your first client.
It can also be incredibly nerve wracking. Like any small business, your practice will face significant challenges, especially in the early stages. If you’re not ready, you may never see your business get off the ground.
To give your business its best chance for success, it’s important to understand the mistakes that cause other small businesses to fail.
You can start by avoiding these five pitfalls:
1. Early Cash Flow Problems
It goes without saying that money is at the heart of every small business failure. A business is most vulnerable in its first couple of years. New entrepreneurs often underestimate the cost of doing business and can end up strapped for cash or heavily in debt.
Fortunately, tax preparation has relatively low startup costs. Your main expenses will likely be:
- Tax preparation software
- Domain and website hosting
- Application fees to the IRS
- Professional liability insurance
- Marketing costs
- Office supplies
- Office costs (Note: Many tax preparers start with a home-based office. It’s okay to hold off on starting a brick-and-mortar location until your business is well-established.)
Try to project your cost of doing business for a full year and then build in room for unforeseen expenses. At least for the first year, you’ll likely run into some unexpected costs, and you’ll be glad that you were conservative with your budget.
2. Losing to the Competition
Tax preparation can be a competitive market. In order to keep up with and surpass your competition, you need to understand them and outperform them.
To stay in tune with the tax prep market in your area, you should regularly examine what other tax preparers are doing. Check out their websites, social media channels, and Yelp or Google reviews. Take note of:
- What services they offer
- Their prices
- How they market themselves
- Which ones appear to be the most successful and why
- What their customers are saying
Try to emulate and improve upon what the most successful tax preparers are doing.
If a tax preparer is getting great community engagement on their social media, analyze what kind of things they’re posting and how frequently.
If several customer reviews praise a preparer for thoroughly explaining confusing tax rules and being fast to respond to emails, cultivate these qualities in your own business.
On the other side of the coin, take note of any pain points customers mention in critical reviews. These insights will help you understand exactly how to market to your potential clients.
All that being said, don’t think of other tax preparers as your enemies. On the contrary, having a friendly network of other tax professionals is one of the best things you can do for your business. Rather, think of them as colleagues you can learn from.
3. Poor Understanding of the Customer
There’s a reason big businesses spend incredible amounts of money researching the habits, beliefs, and behaviors of their targeted customers. When you don’t understand your customer, you’ll waste your time offering products or services they don’t want.
While you don’t have thousands of dollars to pour into consumer research, you can still make an effort to understand what your customers want. These no-cost research techniques will help you understand the desires, motivations, and behaviors of your potential clients.
- Use surveys to solicit feedback from your clients
- Read online reviews about yourself and other tax preparers
- Consume books, articles, or podcasts on consumer behavior. Seek out research that focuses specifically on the purchase of services as opposed to goods.
4. No Marketing Strategy
Many tax preparers start off with a small marketing budget. Unfortunately, this causes too many new tax preparers to ignore marketing altogether or only give it minimal attention.
No matter how small (or nonexistent) your marketing budget is, a marketing strategy is still essential. Our library of posts on marketing for tax preparers can help you with everything from social media to customer acquisition to client retention.
5. No True Business Plan
You likely noticed that most of the problems listed above are intertwined. In fact, they’re all a part of one major problem: not having a business plan.
In the simplest terms, your business plan lays out the long-term goals for your business and a realistic plan for getting there.
A thorough business plan can help you avoid each of the other four mistakes and give you a sense of organization and direction. When you’re overwhelmed by the work and time your new business demands, your business plan reminds you where you’re headed and which actions you should prioritize.
Writing an effective business plan takes a considerable amount of time and research. Without a business education or experience starting a business, the process can feel overwhelming. Thankfully, you have plenty of reliable resources at your disposal.
Forbes’s articles on How To Create A Business Plan and Business Plan Templates are great starting points. While some points — like supply chain management or distribution — aren’t relevant to you as a tax preparer, these resources will still help you formulate a thoughtful, well-researched business plan.
Starting a business will always be tough, but it can be so much easier if you learn from others’ mistakes instead of your own. Before you launch your tax prep business, take the time to research your customers and your competition and craft your business and marketing plan accordingly.
If you’ve already started your business and realize you’re guilty of some of the above mistakes, don’t panic. It’s never too late to refine and improve your business strategy.
And you don’t have to figure it all out on your own — even if you’re a one-person operation. Your personal Customer Growth Partner is ready to help you take your practice to the next level. Not a TaxSlayer Pro user? Reach out to learn how our Customer Growth team helps our users create successful, thriving tax businesses.