The Life Cycle of a Tax Return: Better Project Management Can Lead to Bigger Profits

You got into public accounting because you wanted the freedom. You wanted to build your own firm. You wanted to grow clients and long-term relationships. Right?

"Improving Management Skills" is an essential part of that, especially as you hire staff. You're now responsible for their quality, timely work, growth as professionals, and more. Oh, you have to do this while maximizing your billable time and keeping clients happy. Enjoying the management side of running a CPA firm yet?

All kidding aside, it's usually a good idea to really understand what's going on in your firm. One of the important metrics for CPA firms to keep track of is project engagements.

Instead of randomly assigning tasks and acting surprised when the final deliverable doesn't look like you think it should, be proactive in how you manage your firm's projects and engagements.

We'll look at tax returns in this article, and audits in an upcoming article.

Here are two significant ways that better project management can help your firm become more profitable providing tax compliance services.

1. Automatically Assign Projects 

Bob is the managing partner at a firm with two other partners, five managers and 10 associates. For the past 20 years, the standard procedure has been to handwrite the details on a clipboard as the firm receives client documents. As a return is worked on, the papers and perhaps the return itself, would be signed out of the file room.

Need to know who signed out your client’s tax return so you can answer a question? Stroll to the file room, search for the sign-in/out clipboard and scan it for the initials of the last person who checked out the return, and then track down the person with return. Now, repeat this a few dozen times a week.

Investing in an automated project management system will help Bob track every tax return and who is assigned to -- all with the click of a mouse.

Here are some benefits of assigning projects using automated software:

• Associate is available -- Bob can quickly check the backlog of work and appropriately reassign tasks.

• ‘How much longer?’ questions from a client -- Bob checks the system and identifies which associate is working on the return. It’s quick to get the status.

• Client receives a letter from the IRS – Months after the return is filed, Bob quickly identifies who prepared the return so that associate can resolve the issue.

With automated software, the dozens of handwritten pages listing the firm's 1,000+ tax returns are gone. Clicks replace steps.

2. Analyzing Budgets

A newly-minted associate finishes a partnership tax return and puts it on Patty's desk to be reviewed. After checking the return, Patty also checks how much time was spent on the return. Wow! Only 7 hours. Not bad. The original budget was 8.

Is this a great situation, or there might be problems lurking beneath the surface?

Too often managers and partners judge the success or failure of a tax return based on the overall time spent preparing (and reviewing) one. The truth is that preparing a tax return is much like an assembly line, with many moving parts.

In today's "paperless" environment, there can be many different phases that a tax return goes through before the final deliverable gets in the hands of the client (and the IRS).

Here's what a tax return assembly line looks like for our associate:

1. Receive the client's physical tax documents

2. Organize the tax documents (i.e. going through the shoebox)

3. Scan them into a PDF format

4. Analyze the client's documents to determine what information should be entered onto the tax return

5. Perform calculations and other procedures as needed(accrual-to-cash conversions, depreciation calculations, etc.)

6. Enter the data into the tax software

7. Print and review the workpapers

8. Print and review the tax return

9. Sign-off on the return

10. Deliver to the client

Anywhere along this assembly line something could go wrong. It could be the fault of the associate, the client, the software program, the printer, or the scanner. You'll never know what went wrong unless your work-in-progress software can create a report that details your associates' tasks by these different phases.

It may seem like a lot to ask your employees to keep track of their tax return engagements in this much detail, but with a few, short training sessions, your associates will understand the importance of tracking engagements in this much detail and how easy (and painless) it can be.

3. More Money in Your Pocket

Effective management practices can be difficult to implement. The rewards can be significant when management strategies are effectively implemented. Tax returns are only one type of engagement that CPAs can do a better job of tracking like an assembly line, from when a client first mails in their shoebox full of documents until you press Enter to e-file the return. Even if the overall engagement is already profitable, tweaking just one underperforming portion of the assembly line can yield an improved realization rate, and ultimately, better financial results.