In this podcast, our experts Chris Rivera and Michael Rozbruch had talked about value pricing and scaling up a tax/accounting practice by adding or expanding tax resolution as a lucrative advisory service. Watch here to know more.
#BKOT 30: BUILD A KICKASS OFFSHORE TEAM
VALUE PRICING AND TAX RESOLUTION AS AN ADVISORY OFFERING FOR TAX/ACCOUNTING FIRMS
Hosted by: Chris Rivera, Director Client relations, Entigrity Offshore Staffing
Guest: Michael Rozbruch, Founder, Michael Rozbruch's Tax and Business Solutions Academy
Chris: Alright! Good morning everybody. Very excited to have with me Michael Rozbruch of rozstrategies.com, the founder and this will be episode number 30 in our continuing series of #BKOT. So everybody I want to get started and Michael thank you so much for taking time out this morning. I know you're on the west coast and let's talk more about yourself.
Michael: Yeah, thanks for having me Chris, really excited to be chatting with you this morning even on the east coast.
Chris: Yeah, confuse everybody my fault.
Michael: That's okay, yeah so, I started in this business just when the industry actually came into being. I consider myself one of the pioneers in the business and I didn't get started until I was 42 years old. I came out of the corporate world, I worked in the corporate world for 18 years, you know, worked my way up from junior accountant all the way up to VP finance and some consumer product companies here on the west coast.
And I found myself to be unemployable at a certain point. There was no way I was ever going to work for anybody ever again because I am the kind of guy who's kind of outspoken and if I see a better way to do something, I will let management know and I wasn't good at the political game, you know you needed to let your manager know and let him take credit for it you know that just wasn't me. So I decided to leave the corporate world and hang out with shingle in 1998, strictly doing tax resolution now I didn't have any clients, I didn't have a book of business, I didn't have any IRS experience, my tax experience consisted of doing at the time some manually 10 manual 1040s for family and friends.
But I saw a really big need for this because back in 1997 I was and I still am a little bit a c-span nerd and I was watching the senate televised hearings on tv and the average American got up in front of the tv cameras and we're talking about how the IRS ruined their lives. Padlocked their businesses, people dying of heart attacks out of the stress, Why? these weren't bad people, okay these were people that these were good Americans tax-paying Americans that for whatever reason a negative life-altering event took place in their life which forced the filing and the paying of taxes to the back burner, death or serious illness of a spouse, a child, a nephew, a nasty divorce, nasty custody battle, loss of a major customer if you were a small business and your accounts receivable were concentrated in one area and that company went belly up all of a sudden you're going down the drain.
So I decided to help people with those problems. I am a street kid from Brooklyn, you know I love the David versus goliath fight I never backed down from a fight, I got my ass kicked more times than I can tell you but I never backed away and I didn't know anything about marketing. I was an accountant but I knew that being in the corporate world working at all these consumer product companies I realized that marketing was the oxygen of the business, it drove the top line and drove the bottom line. So I went outside the industry, because in the accounting and tax space there really weren't any marketing programs and I studied from some of the best direct response marketing gurus in our time you know Dan Kennedy, Paul Artunian, Gary Halbert, Bill Glazer all of those folks and I realized that I can port over what they were teaching and bring it to the tax space and that's how I started.
Chris: Wow! you were literally born an entrepreneur and it just took you some time to realize.
Chris: The potential that you had and now share it with everybody in regards to this that's an awesome story. And so in doing this now and working with our audience per se the accounting community, you know so you're a CPA or an EA right you have that designation and tax it's just compliance right and so this a great avenue to move over to an advisory service. I have noticed speaking with thousands of clients over the last several years and specifically since the ongoing pandemic started, that this a model that they want to move into and then they did they just don't know where to start. So can you talk about where to start and kind of elaborate on how to get this off the ground?
Michael: Right, so most of the audience listening that are in the accounting or tax base probably have already been exposed to tax resolution one way or another. They may not realize it because they probably had clients in the past that owed money to the IRS and they told the client look I will just call the IRS and set up a payment plan and they don't think of the value that they're providing by doing that.
A lot of folks who don't know what the value proposition and tax resolution is either did it for free or charged them an hourly rate and most accountants think the work is miserable and the reason is they don't have a system to charge appropriately, they don't know how to talk to the client, they don't know how to get across that value proposition to the client.
It's a totally different animal than a compliance client and one of the things I stress is if you're going to be serious about this this practice is to form a separate entity, a separate 1120s or an LLC to house the tax resolution business because it is a totally different animal than a traditional accounting or tax practice. But one of the best ways to start your audience right now this audience has sitting on top of gold, right in your own database all you need to do is send I call it a stealth referral letter to the recipient that looks like an announcement but to you the practitioner it's a stealth referral letter and basically what it says is that you have now expanded your practice to include IRS representation services in the following areas, and you personalize the letter and you even segment the zip code so it's really that you're doing this for let's say Los Angeles county residence or Santa Barbara county residence and that that letter that one letter will get the phone ringing that's where to start.
Chris: Great idea! And in order to better serve clients too, I have spoken about on my series you know it's different touch points and some clients don't know where to start and that's a great way, offering a new service for this because yeah you're right I mean these stories that we hear and what it does to small businesses specifically is devastating, they don't know what to do you know, you can help them out developing this.
And so now about the pricing models that I have seen clients yet they're charging on an hourly basis to their clients but you know moving over to the service or value base I think is key and so let's say someone is charging on an hourly basis and they want to offer this service, should they continue like that or should they just put that in a specific bundle or how would they go about now marketing and now that they're getting business?
Michael: Yeah so they should put it in a bundle per se and I will go into that in one second. So Chris in 16 years when I had my practice I never sent out one invoice ever. Everything was done on a flat fee fixed fee basis and I also one of the keys to this business and here's one of the big differences is you need to secure a credit card authorization form or an ACH form for the monthly recurring payments in a tax resolution case.
So the way my pricing model works, let's say the case is 5000 dollars which is the average tax resolution client's fee I would collect 30% as a deposit which is 1500 dollars to start and then I would carry the client interest free with six to eight monthly payments because most tax resolution cases take at least 8 to 12 to 18 months to resolve. So I am paid 100 before the case settles I have deferred revenue on my books versus accounts receivable. I have money in the bank for services yet to be performed with this model and I didn't consider it a sale Chris. Look when I was in the business and to this day in this business I told people I was a marketing and sales organization that provided exemplary professional services in the tax resolution field. So I viewed my entire business, I viewed marketing as the overarching umbrella to everything I did. So once you make that mindset shift and it's hard for accountants it's really hard for accounts because accountants are great technicians and they have a hard time with that mindset shift but marketing isn't the one thing you need to really embrace. It's the only thing that's really going to drive your net bottom line now I am assuming the audience is already top shelf with regard to technical skills. I am not taking anything away from the technical but the technology is secondary to the marketing. I don't know if I got off tangent there.
Chris: No, it's important to understand you know kind of where to start this. And now you let your clients know that you offer this service and you know starting on the hourly model, make it into a bundle model and then you know you've got to find ways to also you know have the compliance work taken care of and then so the owners or the partner's directors can be in front of the clients and keep driving that and keep marketing out to them to get more of this business. So now we're in the park to where clients also are realizing that they can have clients nationwide right. So doing tax resolution, do you have to just do it in your city or state or can you offer it across the country as well?
Michael: That's a great question, yes! you can because the IRS is a federal agency. And as long as you're in good standing with your state's certified public accountancy licensing agency or your state bar because a lot of attorneys do this work or you have a valid enrollment card from the IRS as an enrolled agent, you can represent clients over state lines in all 50 states. So you can really exponentially grow your practice out and by the way tax resolution lends itself to the remote virtual model. People don't want to come into the office. I mean 99% of my business was conducted over the phone, as most people don't want to come into the office.
Chris: Yeah, it's definitely the environment that we're in is set up for this to be successful, not just for you to know specific clients in a certain area but for all their clients. And now when you're doing this and working with the client you said it takes several months for this you know to kind of come to fruition. I am sure people are thinking this going to consume a lot of my time right. So from start to finish I mean can you estimate or give an idea and work with if you said an average case was you know five thousand dollars. Time is of the essence especially during the season. Can you outline the kind of time that it would take for the CPA owner to work with the client themselves?
Michael: Sure, so there are three phases to every collection case and by the way, 90% of your tax resolution clients are going to be collection cases. In other words, money that's owed that they can't pay, the other 10% are audit representation. So each collection case is broken into three phases:
- The first phase is transcript investigation and discovery.
- The second phase is compliance because 50% of your collection cases the clients are going to be considered non-filers, they're going to have an average of four to seven years of unfiled returns, and then,
- The third phase is permanent resolution.
So when you break it down that way and we have a fee schedule for each of the phases of each of the activities. A case like that Chris if someone owes let's say 65000 to the IRS and has four years of unfiled returns and let's say he's being levied his paycheck is being levied by his employer that's a 9000 dollar case, not a 5000 dollar case and what I am talking about is the rule, not the exception these are your bread and butter tax resolution cases. So that case is going to it's going to remain in your inventory in other words it's going to be in your office for probably 12 to 18 months, if you're doing an offering compromise however man-hour labor says I have a cost accounting background, so I cost out all of these activities and came up with my fee schedule.
Michael: So, that inexperienced it's going to take you 20 hours to resolve that case, you will have it in your inventory for 15 to 18 months but at 20 hours at 9 grand what is that, I think it's close to 450-460 dollars effective hourly rate. And once you have some experience and you get some of the case management software that's available, you should be able to shave five hours off of every case now you're talking about your hourly effective rate north of six hundred dollars, so there's a fortune in this business.
Chris: That's great you know 12 to 18 months at the same time, an hour a month essentially and working with the client I mean that's easily done, that's as long as it's like doing one tax return a month essentially. And okay so now is there a certain amount of cases that the CPA firms and can take on or I mean can they really speaking with clients they're trying to think of different ways, you know to leverage their services I mean when they take on like 100-200 cases, I mean how does that work with the canali take on a certain amount, if they're seeing this as maybe alike a full-time position?
Michael: Well 80% of the work Chris can be done by non-licensed persons. So the license or the CPA or the EA license is used or to negotiate and speak with the IRS, but all the grunt work all the client contact and all by the way a collection case the meat potatoes of a collection case is a 433A or a 433 A OIC which is the I call it the six-page snapshot of the client's current financial position you know they look at assets liabilities income and expenses that could be done, that could be put together by a paraprofessional, an admin, a legal secretary it does not need a license to do that so 70 to 80 percent of the work is not even done by the CPA or the EA and someone who is just starting out can handle easily two to three to four cases a month without it really affecting their practice you know that's an extra 15-20 grand a month at 5000 in additional revenues.
Now when I had my firm we had 16 licensed professionals that were supported by 40 support staff and the case managers, the CPAs, the EAs, and lawyers had caseloads of about 100 to 125 clients at any given time. So if you set this up with a system and a process you can really because the money in the resolution business is not only in the follow-up but it's in the efficiency on how efficient you are at resolving the cases.
Chris: Wow! yeah so you could really scale this for sure.
Chris: Yeah this a great opportunity to tie in you know what we do with offshore staffing. I mean we assist with the tax resolution for sure but that could all be kept onshore and then the compliance work right can all be done offshore than this how they can really scale and grow quickly right. And so those are some of the solutions that we offer in regards to that specific with taxes too. I mean our number one business is tax, bookkeeping, so having the opportunity to focus this onshore worry about the compliance offshore and they're all everything keeps rolling and they're able to scale and grow and bring all this together.
Michael: One of the things that you bring to the table, especially with regard to bookkeeping because a lot of these clients especially the small business the schedule C's or even the corpse that are you know 2 million and under in revenue their books are a mess. I mean totally a mess what we did is we didn't do any in-house bookkeeping and I am talking years ago, we outsourced that. Now entigrity wasn't a solution then or offshore wasn't a big deal then, we outsourced it to bookkeepers in the client's local area to get the books done, and then they would come back and we would prepare the return. But if a practitioner can send it to one place like entigrity and you guys are set up for that I think it's a great solution that you would provide to tax resolution professionals with regard to the bookkeeping aspect.
Chris: Yeah, it definitely goes hand in hand. So let's talk about some of the things that you do right so some of the programs that you offer are there as a monthly membership or do you have like are you hands-on or do you have programs where you kind of self-study can you talk about what you do for clients?
Michael: Right! so what we and we have a lot of free resources for your audience as well. If you go to www.rozstrategies.com there are some free resources there and also on my Youtube channel we have like 100 short training videos and that's Michael Rozbruch's tax and business solutions academy on YouTube.
But what we do is we offer a handheld solution. We have a physical product which we call and that's our signature product which we call the tax resolution domination system and toolkit and that comes attached to a monthly membership and there's a couple of different levels in the membership, so we like to think of that the physical product, the stuff that comes in a box is all the how-to and the membership is the bridge to the implementation piece. So we provide unlimited technical support case support marketing support and then we have a couple of levels of people who want to work with me a little more closely, we have two other mastermind levels of a founders group and a platin which we actually meet in person it's a small group, so there are different ways people can work with us.
Chris: Wow! yes so starting with the resources that you have out there, getting the gist of it seeing what's offered then they could decide you know how much do they want to go into this, they want to get this get their feet wet and try it out or if they're just want to do this all in 100 and you'll be by their side essentially that's great, that's awesome wow. I mean I have had different coaches mentors advisors come on to this series but this has been really interesting I have got to say just because of the value one that it offers in saving small businesses and two the revenue that the services and it's not really a big-time commitment either
Michael: It's work though it does take work and I think you know there's only in the country if you think about it because I have done some research on it. There are only about 4500 firms and practitioners that offer this as a separate lucrative service offering. So there's way more demand than there is supply and the reason Chris that more accountants and EAs don't get into it is they're afraid of the work, they're afraid of messing up, they're afraid of making a mistake and my answer to them is always looking if someone comes to you owing 75000 bucks, they have four years of unfiled returns they're being levied by their employer, there is nothing you could do to make that situation worse nothing okay they're already screwed up!
Chris: True, very true.
Michael: And it's such a small leap since you're already credentialed and you're ready no tax it's really us a small leap to learn the technical side of the resolution.
Chris: Yeah well said, I learned a lot myself today. I really appreciate you coming on and before we sign off though give us some final thoughts today really appreciate this input.
Michael: Sure, well it's important to at least be aware of tax resolution today because everyone listening if you're in the tax business 25% to 1/3rd of your clients are going to become if not already a tax problem resolution client do the economic devastation of Covid19. So you really need to learn in my opinion, how to handle these cases and more importantly how to charge for them so that you can actually enjoy the work and make a lot of money and impact people's lives, you're basically saving someone's financial life when you're getting the help from coming out you know under the eightball with the IRS. So it's important that it's going to be around for a while and every democratic administration you know the IRS has decimated their budget over the last 10 years, they've lost 20 of their headcount they've lost budget but every democratic administration going back to Clinton and under Obama and it's going to happen under Biden, they will beef up and give money to the IRS and it's already underway Chuck Reddick who's the IRS commissioner spoke yesterday and he's already predicting that they're going to be receiving probably close to a billion dollars in additional funding in 2021-2022 most of that going towards enforcement.
Chris: Oh yeah wow! that's a good little tidbit right there yeah and that's traditionally what happens but it's going to be I mean they printed a lot of money.
Michael: Right! now they have to pay that money so they're going to come over they're going to go to the American taxpayer and hit them over the head with a club as soon as this Covid19 is the further we get away from the pandemic and get back to normal. The IRS is going to come out like gangbusters.
Chris: Oh god, absolutely! I agree with you, spot on but Michael awesome this really good information that you provided to our team, our audience today.
Michael: Thank You.
Chris: Everybody, thank you for taking time out this morning to join us we're signing off now. We'll be meeting with you guys soon in a couple of weeks for some more information, but I know you got to get back to the season, so get back to work Michael thank you so much this awesome today.
Michael: Thank you, Chris.
Chris: Have a good day.
Michael: You too, thanks bye-bye.
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