As more firms, particularly smaller shops, look beyond tax work for future business, an increasing number are turning to payroll either as a separate business or an expanded service offering with a reliable revenue stream.
Moreover, the stigma of payroll being a costly, time-consuming and low-return endeavor seems to be wearing off, as evidenced in the five small firms below. Each explains how their selected product or provider was able to help generate regular income and elevate their status as a trusted advisor.
Cost conscious
Firm: Sterling Payroll Services Inc. (Anthony Milia CPA) / Johnston, R.I.
Size: 3 staff (2 full-time/1 part-time)
Product: SurePayroll (a Paychex company)
Commencement date: June 2013
On record: Accountant Kim Johanson Izzo
Challenge/objective: To provide payroll to individual and small employers who did not want to use "one of the big payroll companies."
Amount spent: No upfront fees, revenue share with SurePayroll.
Process: The firm mainly performed tax and accounting for its clients and was realizing that it wanted to be more service-oriented. It had done some payroll work but only manually. After speaking to its clients about payroll, Izzo noted that clients were not willing to pay to work with large payroll companies and preferred to deal with the firm on payroll issues. Given that, the firm sought out payroll providers that would be more "cost-effective" for its clients.
"Most of our clients are small businesses with one to five employees ... so we needed to find something that fit their budget and allowed us to provide the services they required," said Izzo.
They were introduced to SurePayroll by Paychex when the firm approached them about their cost options. SurePayroll seemed to "better fit the clients' budget" and, after some inquiries on the service, the decision was made to move forward with SurePayroll.
"Yes, there was some cost to our clients, but all except one wanted to be involved," said Izzo. "It was time-consuming to get started, we had to devote a couple of hours per employer, but we got that done. The first payrolls ran the first week of July and we haven't had any problems or issues they couldn't handle."
Results: The firm initially moved nine clients to SurePayroll and currently has 14. Izzo also noted that the firm has grown its client base by being able to offer payroll as an additional service offering and is "definitely seeing a profit" over the past year.
"We are getting paid every month on those [payroll] clients. You set your own fees for the service," said Izzo. "We have eliminated IRS notices too, because everything is paid on time. Our business client base is 350, and half don't have payroll so we have a base we can solicit."
Next steps: The firm is looking to continue adding new corporate clients by offering more services, such as payroll.
Affordable & automated
Firm: Accentrix Solutions (part of Terry Deever CPA) / Camarillo, Calif.
Size: 6 full-time
Product: Payroll Relief (AccountantsWorld)
Commencement date: October 2013
On record: Owners Donny and Terry Deever
Challenge/objective: Wanted an affordable, automated way to conduct payroll for small businesses and larger clients unhappy with their current payroll service.
Amount spent: First year - $997 for the solution, training included.
Process: The firm had formed Accentrix Solutions to perform payroll services for clients and even used another automated service, but as its client base grew, found it "had limitations" and was not cost-effective.
The Deever brothers began researching alternatives and came across AccountantsWorld and its Payroll Relief product and decided to call them for a demo. "We were very impressed with what we saw, the price was right and we really enjoyed the customization you could do - something our previous service didn't have," said Terry Deever. He noted that customization was a "big factor" in helping place its largest client - a 300-employee company - on to Payroll Relief.
"What also stood out was the features: [Payroll Relief] allows for more complicated payroll situations, and the other provider we saw didn't take into account things like wage garnishments, paying taxes and customizing all of that," said Donny Deever. "The reporting features were also great: They can do way more reports than any other solution we found, and that met our client needs more. We also liked that it linked with the Cloud Cabinet so we could have reports available to clients on the Web."
Deever noted that it took approximately two months to "get up and running" on Payroll Relief. Importing client information was "easy," and they only ran into a "minor issue" with not knowing how to correct a particular paycheck calculation. They were able to contact AccountantsWorld to correct the issue, and claim there have been no incidents since then.
Results: The first year the firm started the payroll company in 2012, they grossed $10,000 from payroll services. This year the firm is at $40,000, though they admit that the greatest function is the ability to retain clients.
"One thing with payroll is if you don't hear anything from clients, that's good, so because payroll tax deposits are electronic and quarterly taxes are electronic, it's a no-brainer," said Terry Deever. "We love telling clients there is nothing else for them to do. As CPAs, we are going more toward servicing business clients, and this [payroll service] allows us to do it."
Next steps: The firm is looking to be more of a full-service firm and hopes the payroll business can provide ongoing income and a base to operate. The firm wants to provide tax, business consulting, payroll and financial advisory services.
Market potential
Firm: Lonnie Maron CPA / Rockville Center, N.Y.
Size: 6 staff
Product: RUN Powered by ADP Payroll for Partners (ADP)
Commencement date: January 2012
On record: Junior partner Mark Lawrence
Challenge/objective: The firm wanted to add consistent, reliable revenue, and thought payroll could do that while adding a valuable client service in the process.
Amount spent: Costs can vary; firm spends approx. $8,200 per year.
Process: Lawrence joined the firm in 2010 and saw the market potential for payroll services, but partners were not convinced there was much upside.
He had known an account representative at ADP who had brought up utilizing their payroll services for a year prior to RUN Powered by ADP being launched. The firm had been actively searching for different payroll and HR administration programs, and was eventually approached by the representative when the new platform for CPAs was released. Lawrence received a generic logon to check it out and attended a lunch meeting with the representative and the firm's managing partner. The MP was against it, but Lawrence made a case for using the service.
"We have a solid corporate client base, with medical, dental and law in particular, and saw what they paid in HR and payroll expenses as well as payroll tax returns," said Lawrence. "I ran a report, it said what clients pay and showed if we did it that things would change and could be better for our clients since they didn't have to deal with a vendor direct or the costs associated with doing it that way. Also, at the wholesale rate, we saw we could make another $15,000 to $16,000 a year. That was a tipping point."
Once they started to use the platform, Lawrence said, he found it easy to use, with simple screens and the ability to run a variety or reports. He claims that within a week he was able to get himself and a staffer up and running on it.
Results: The firm started with only a few clients on the payroll platform and currently has 20, generating over $25,000 a year in revenue for the firm. "Aside from the income, it means greater control over client relationships and makes us more of a go-to office," said Lawrence. "My partner never wanted to touch payroll, it's not always much money, but since going with this [ADP] platform, we went from being a one-man tax preparer to a multi-faceted firm. It's also allowing us to bring in new business as well as make more money on existing clients."
Next steps: The firm would like to hire an in-house attorney to go after their aging client base for estate planning as part of branching out its overall service offerings. The firm would also like to grow its referral business - it is already growing at 8 percent just from referrals.
Reasonable, reliable
Firm: Aronson Professional Services / Chicago
Size: 3 full-time staff
Product: myPay Solutions (Thomson Reuters)
Commencement date: Early 2013
On record: Owner Steve Aronson
Challenge/objective: Had initially avoided doing much payroll, finding it unprofitable, but had more clients that needed it and wanted the right solution for it to be profitable and easier to do.
Amount spent: No financial outlay, small set-up time. Firm earns referral fees.
Process: As a self-described "boutique firm," Aronson focuses on tax and accounting services for startup businesses with an average of $25 million in annual sales. He currently has 160 business clients and 270 individual 1040 clients.
Aronson has used Creative Solutions and Thomson Reuters products since 2003, and claims he has enjoyed the experience with them. When he decided to split from his old firm back in 2007, the payroll business was sold to a large national payroll provider, which he said "made the most sense at the time."
As time went on, more of his own clients were asking for payroll services from him, and he was introduced to myPay Solutions around the time of its launch. "I had reached out to [Thomson Reuters] and said I want to move clients to payroll and what do you have. Not everything goes perfect in our world, but how you handle it is how you define what kind of professional service provider you are," said Aronson. "The real hook for me was that I have a lot of sole proprietor clients or very small companies and I needed something easy and price-conscious. It was reliable in the name, reasonable in price."
He officially began using myPay Solutions in early 2013 and found that, while it didn't "do anything outrageously different" than other payroll services, Aronson said they were "easy to work with, they get it right the first time, they are reliable and that pays dividends. If I have a high-end client that needs more than I have, then I'll direct them [elsewhere], but overall they do all they said they would do."
Results: According to Aronson, "The minute I flipped my clients over to myPay, I get a 10 percent commission on every customer for life. They understand what the CPA brings to the table. They also have additional incentives; for example, we signed on 15 new clients in a month, [so] we got money on a Visa card for travel."
Aronson also noted that by having a "trusted payroll service," he is increasing his referral business as well. "I know my name and reputation is on the line with anything I refer; I feel good about referring clients to myPay Solutions," he said. "I haven't advertised in over 15 years, I haven't needed to because of referral business. Not having to speak to the payroll company all the time is also priceless."
Next steps: Every new client Aronson has will be turned on to myPay Solutions.
Efficient software
Firm: Total Income Tax / Peoria, Ill.
Size:8 full-time staff
Product: Apex Payroll
Commencement date: Early 2011
On record: Sharpe Payroll president Joe Sharpe
Challenge/objective: Had software that wasn't doing everything they needed it to do for a growing, separate payroll business.
Amount spent: Pricing varies by volume.
Process: The principals of Total Income Tax had decided to start up a separate payroll practice, as their payroll business was growing. Sharpe Payroll officially formed in 2011 with a core base of QuickBooks clients. The business has clients with anywhere from one to 400 employees, but primarily targets businesses with five to 100. The firm was doing payroll for those clients using that software, but they realized they needed to do more.
"I still meet with lots of tax offices thinking about [payroll] or more recently diving into it and the biggest hurdle is the initial investment in software that can really get them going," said Sharpe. "Doing payroll in software that wasn't really meant for payroll just wasn't working as we grew the business; there's no batching, it's not as automated, so the partners had to find something different."
Sharpe came on board prior to the firm selecting Apex, and having more of an audit background he wanted to be certain they were using "the best possible product," so he began his own research for other solutions as a comparison. "I did not know at the time that we were on the best software, so after some research one thing that really stood out against the rest was that it was built in the cloud," said Sharpe. "Lots of other well-known payroll companies didn't build themselves that way, data is on a local server and they are trying to convert to the cloud. They are also dedicated to improving for integrating with HR compliance and 401(k) services, shipping services - things like that that make it efficient as possible."
He also said that he found the product easy to use for himself and his clients, and the company recently made some "slick improvements" to the user interface that make it more attractive. "If [clients] want to go in and enter hours, it's simple - just a few clicks. All they need to know is how much to have in the bank each month, when it's coming out and payroll is done."
Results: The payroll business currently serves 140 clients and processes 10,000 checks per month. Over the past year, the firm earned $400,000 from payroll and said that it could be closer to $450,000 to $475,000 by the end of this year.
Next steps: The firm recently started doing HR and compliance services, and going forward, just wants to grow through marketing and sales.
"We would add 200 clients and still only need one staffer to service them - the software can accommodate that. Once we start marketing the payroll business more, that could grow significantly," said Sharpe.
